Dollar and yields recover, EUR/USD and USD/CHF Weaken, AUD/USD Firms

China Reopening Lifts Risk; Big Data Week Ahead

Summary:

The Australian Dollar (AUD/USD) firmed following China’s decision to relax some of its vaccine and quarantine protocols. At the close of trade on Friday, the Aussie settled at 0.6795 from its opening at 0.6770.

Against the other major currencies though, the US Dollar firmed. The Euro (EUR/USD) finished at 1.0530 (1.0560 open). The shared currency once again failed to climb above the 1.0600 level.

The Greenback was last at 136.60 Japanese Yen (USD/JPY), little changed from 136.65 on Friday morning. A recovery in US bond yields supported the Dollar. The 10-year yield rose to 3.58% (3.49%).

Sterling (GBP/USD) rose modestly to 1.2255 from 1.2245. Ahead of this week’s Bank of England interest rate decision (Thursday), the Pound kept its bid. The BOE is expected to lift rates 0.5%.

The USD/CHF (US Dollar-Swiss Franc) pair slid to 0.9345 from 0.9365. The Swiss National Bank meets on policy on Thursday. Analysts expect a 0.5% rate increase to 1% from 0.5% from SNB officials.

Against the Asian and EMFX, the US Dollar was mixed. The USD/CNH (Dollar-Offshore Chinese Yuan) pair rose to finish at 6.9740 from 6.9630. While USD/THB edged lower to 34.60 (34.65).

Economic data released on Friday saw New Zealand’s Q3 Manufacturing Sales soar to 5.1% from a previous upward revised -3.2% (from -3.8%). China’s November CPI (y/y) matched forecasts at 1.6%.

China’s November Producer Price Index or PPI (y/y) was at -1.3%, matching October’s -1.3%, but better than median forecasts at -1.4%.

US November PPI (m/m) climbed to 0.3% from a previous 0.2%, matching median forecasts at 0.3%.

November Core PPI (m//m) rose to 0.4% from a previous 0%, and higher than estimates at 0.2%.

Canada’s Q3 Capacity Utilisation eased to 82.6% from 82.8% and lower than estimates at 83%.

The U.S. University of Michigan Preliminary Consumer Sentiment Index rose to 59.1 from 56.8 and higher than economist’s median forecasts at 53.3.

• AUD/USD – The Aussie had a choppy trading session on Friday, jumping to an overnight high at 0.6813 from Friday’s open at 0.6770 before settling at 0.6795. China’s decision to relax some of its vaccine and quarantine protocols lifted risk appetite which buoyed the Aussie.
• EUR/USD – After climbing to an overnight high at 1.0588, the Euro slid back to 1.0530 in late New York where it closed. In volatile trade, the shared currency hit an overnight low at 1.0499.
• GBP/USD – The British Pound steadied against the Greenback, edging higher to close at 1.2255 from 1.2245. Overnight, the GBP/USD pair soared to a high at 1.2323. On Friday, the 10-year UK treasury Gilt yield rebounded to 1.92% from 1.81%, supporting Sterling.
• USD/JPY – The US Dollar was little changed against the Japanese Yen, finishing at 136.60 in New York from Friday’s 136.65. Overnight, the Greenback traded to a high at 136.91. The overnight low recorded was at 136.00. Higher US bond yields failed to lift USD/JPY.

On the Lookout:

The week ahead is a huge one in terms of economic data releases.

It is the last full trading week before the Christmas and New Year break.

Today kicked off earlier with New Zealand’s October Visitor Arrivals (m/m up 6.8% from a previous 16.6%).

Japan follows next with its BSI Large Manufacturing Index (q/q f/c 1.2% from 1.7% - ACY Finlogix), Japanese November PPI (m/m f/c 0.5% from 0.6%; y/y f/c 8.9% from 9.1% - ACY Finlogix).

Australia releases its ANZ Bank Job Advertisements for October (m/m f/c -0.7% from previous -0.5% - FX Street).

Japan releases its November Machine Tool Orders (f/c 1.5% from -5.4% - ACY Finlogix).

The UK kicks off European data with its UK October Balance of Trade (f/c -GBP 3.2 billion from -GBP 3.135 billion – ACY Finlogix); UK October Industrial Production (m/m f/c 0% from 0.2%; y/y f/c -2.8% from -3.1% - ACY Finlogix); UK October Manufacturing Production (m/m f/c 0% from 0.2%; y/y f/c -5.4% from -5.8% - ACY Finlogix); UK October GDP (m/m f/c 0.4% from -0.6% - ACY Finlogix).

The US releases its November Consumer Inflation Expectations (f/c 5.8% from 5.9% - ACY Finlogix) and US November Budget Monthly Statement (f/c -USD 95 billion from -USD 88 billion).

Bank Of Canada Governor Tiff Macklem is due to speak on the Canadian economy at the Business Council of British Columbia meeting in Vancouver.

On Wednesday, the US releases its CPI report with the FOMC meeting to follow early Thursday.

Trading Perspective:

After falling most of last week on a corrective move, the US Dollar recovered in tandem with bond yields.

Heading into this week’s US CPI release as well as the FOMC meeting, expect the Greenback to stay bid.

The FOMC is expected to hike its policy rate by 50 basis points with their terminal rate projection around the 5% mark.

Over the weekend risk appetite was buoyed by China’s decision to roll back some of its tough Covid 19 rules.

US investment banks, Goldman Sachs and JP Morgan have warned that the path to reopening is likely to be bumpy.

Which is a support factor for the Greenback.

• AUD/USD – A combination of risk-on and short-covering boosted the Aussie Battler to finish at 0.6795 from Friday’s open at 0.6770. Overnight, the AUD/USD jumped to a high at 0.6813. Immediate resistance today lies at 0.6815 followed by 0.6830. On the downside, look for immediate support at 0.6770, 0.6740 and 0.6700. Expect the Aussie to drift lower in the current environment, likely range today 0.6720-0.6820. Sell rallies.

(Source: Finlogix.com)

• EUR/USD – The shared currency also fell under the weight of a stronger US Dollar, closing 0.27% lower to 1.0530 from 1.0560. Look for immediate resistance in the Euro at 1.0560, 1.0590 and 1.0620. Immediate support can be found at 1.0500, 1.0470 and 1.0440. Look for the Euro to trade in a likely range today of 1.0470-1.0570. Sell rallies still the way to go.
• GBP/USD – The British Pound managed to rally modestly against the Greenback to 1.2255 from Friday’s 1.2245. While there were no major UK economic releases on Friday, speculative short bets were forced to cover ahead of the weekend. In volatile trade, the overnight high recorded was at 1.2323. For today, look for immediate resistance at 1.2280, 1.2320 and 1.2350. Immediate support is found at 1.2230, 1.2200 and 1.2170. Looking to sell Sterling rallies to 1.2300 and above.
• USD/JPY – While the Dollar Yen finished little changed at 136.60 (136.65 Friday), the overnight trading range was between 136.00 and 136.91. Trading was choppy with solid interest on both sides. For today look of immediate resistance at 136.90 followed by 137.20. Immediate support can be found at 136.20 and 135.90. Look for the USD/JPY pair to consolidate in a likely trading range today of 136.00-137.00.

Have a good Monday start. Happy trading in the week ahead all.