In the face of the new Omicron covid variant and Fed Chair Jerome Powell’s hawkish view, the US dollar is poised for new upside risks in the coming weeks.
"Recent developments have introduced new upside risks to our broad Dollar forecasts.”
“First, following public comments from Fed officials, our economists now expect the FOMC to accelerate the pace of QE tapering and to wrap up the process in mid-March. They also now anticipate three 25bp rate hikes next year instead of two (in June, September, and December, vs July and November previously), and a two-per-year pace thereafter.”
“Second, the new covid variant already roiling South Africa may introduce new downside risks to global growth, and therefore upside risks to the safe haven Dollar.”
“We have not revised our broad USD forecast today but will be considering an upgrade over the coming week."
Japan's government vows to deploy necessary fiscal spending without hesitation in response to the crisis, Reuters reports, citing the government's draft guidelines for the fiscal 2022 budget.
“Japan must restore economy first and then tackle fiscal reform.”
“Japan must prioritize efforts to shore up the economy over fixing its tattered public finances.”
“The guidelines dropped a reference to the need for "reviewing spending without sanctuary", which had been inserted in recent years as a pledge to stick to fiscal discipline.”
USD/JPY is treading water around 113.00, on a cautious footing amid falling yields and risk-off trading ahead of the key US NFP release.
Reuters is reporting that the US Senate has voted to approve the bill to avert a government shutdown over the weekend.
The US government funding bill was passed in the Senate by 68-29 votes.
Early Asia, the funding bill was passed in the House of Representatives, which will keep the government afloat until February 18. The bill will now be sent to US President Biden for signing.
The US dollar index remains unfazed by the above comments, currently trading flat at 96.20. Traders await the US NFP for fresh impetus.
US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, snapped a six-day downtrend by the end of Thursday’s North American session, per the data source Reuters.
In doing so, the inflation gauge bounced off the 10-week low flashed the previous day to print 2.47% at the latest.
The uptick in the US inflation expectations could be linked to the hawkish Fedspeak and optimism over the US policymakers’ ability to avoid a government shutdown, which has a deadline of Saturday.
Adding strength to the momentum were firmer US job-related data and recent optimism over Omicron treatment after the UK approves clinical trials for the drug that is a likely solution.
However, spreading cases of the South African covid variant in the US and cautious mood ahead of the US Nonfarm Payrolls (NFP), as well as US ISM Services PMI, challenges the market optimism.
Read: Yields retreat, S&P 500 Futures consolidate gains with eyes on US NFP
Market players stay divided during early Friday as the Fed hawks confront reflation and geopolitical concerns. Adding to the filters is the cautious mood ahead of the US Nonfarm Payrolls (NFP).
To portray the sentiment, the US 10-year Treasury yields drop 2.3 basis points (bps) to 1.426% whereas the S&P 500 Futures drop 0.50% at the latest. That said, the US bond yields recovered from the latest October levels the previous day while the Wall Street benchmarks posted the biggest daily jump in the current week.
Fed policymakers, including Federal Reserve (Fed) Bank of San Francisco President Mary Daly and Richmond President Thomas Barkin, were the most hawkish and fuelled US Treasury yields the previous day. Also helping the bond sellers were softer-than-expected prints of the US Initial and Continuing Jobless Claims for the week, as well as downbeat Challenger Job Cuts for November.
The recent optimism over finding the cure of the South African variant of the coronavirus, dubbed as Omicron, seemed to have underpinned the US stocks on Thursday.
Recently, the EU-US dislike for China and comments by Beijing’s Ambassador to the US, over phase one deal and tariffs, seem to challenge the risk appetite. Furthermore, the US policymakers’ struggle to avoid a government shutdown on Saturday probes the optimists of late. Additionally, the five Omicron cases in the US and spreading virus woes in the rest of the world also weigh on the risk appetite.
Talking about data, China’s Caixin Services PMI for November came in below 53.8 figures to 52.1 while the Composite PMI also dropped from 51.5 to 51.2 during the stated month. Before that, Australia’s PMIs were mixed for November while Japan’s Jibun Bank Manufacturing PMI came in better than previous for the stated month.
Looking forward, markets expect 550K of NFP print and an easy 4.5% Unemployment Rate, an absence of which can extend the latest weakness of the US Treasury yields and favor equities amid hopes of further easing.
Read: US Nonfarm Payrolls November Preview: Can we agree the labor market is healing?
Asia witnesses a turnaround in the market sentiment, as risk trades take a hit from the growing spread of the highly contagious Omicron covid variant in the US.
After a case of the new strain detected in California a day ago, Los Angeles reported its first case in the last hour.
Earlier on, Hawaii confirmed a single Omicron covid strain case while New York State registered five cases. Although all fives cases reported are said to be mild.
In light of escalating concerns over the new variant, the US has announced a mandatory COVID-19 test a day prior to departure for travelers inbound to the country from December 6.
To soothe these discouraging headlines, investors remain hopeful that vaccines will remain effective or can be adjusted.
According to Bloomberg, “A UK study testing seven different COVID-19 vaccines as booster doses found most of them increased antibodies, with shots from Moderna Inc. and the Pfizer Inc.-BioNTech SE partnership performing best.”
Meanwhile, GlaxoSmithKline said Its COVID-19 antibody drug, Sotrovimab, is likely effective against the Omicron variant.
As of writing, the Asian stocks are trading mixed, weighed by the negative momentum in the Japanese and Australian indices.
Meanwhile, the S&P 500 futures are down 0.40% on the day. The high beta AUD/USD is losing 0.30% on the day to trade near yearly lows sub-0.7100.
NZD/USD remains depressed around the intraday low of 0.6786 following the release of China’s Caixin PMI data during early Friday. In doing so, the kiwi pair portrays the market’s sour sentiment, as well as reacts to the softer data, ahead of the key US Nonfarm Payrolls (NFP).
China’s Caixin Services PMI for November came in below 53.8 figures to 52.1 while the Composite PMI also dropped from 51.5 to 51.2 during the stated month. In doing so, the private activity gauges differ from the official readings published earlier in the week.
Read: Chinese Caixin Services PMIs expand at a slower pace
Mostly adding to the bearish bias is the broad US dollar strength amid hopes of faster Federal Reserve (Fed) tapering after the policymakers sound hawkish in their latest appearances, before the silent period starts from this Saturday. Among the key promoters of faster rolling back of easy money, also conveying reflation fears, were Federal Reserve (Fed) Bank of San Francisco President Mary Daly and Richmond President Thomas Barkin.
Not only the hawkish Fedspeak but the softer-than-expected prints of the US Initial and Continuing Jobless Claims for the week, as well as downbeat Challenger Job Cuts for November, also underpinned the hopes of faster Fed tapering and favored the yields and USD.
It should be observed that the Wall Street benchmarks also consolidated weekly losses the previous day but the S&P 500 Futures and Asia-Pacific stocks dwindle during early Friday.
The reason could be linked to the hopes of the US policymakers to avoid a government shutdown, which is looming for Saturday. Also positive for the kiwi prices could be the recent optimism over finding the cure of the South African variant of the coronavirus, dubbed as Omicron.
Alternatively, the recent EU-US dislike for China and comments by Beijing’s Ambassador to the US, over phase one deal and tariffs, seem to challenge the risk appetite. On the same line were cautious sentiment ahead of the US jobs report.
Read: US Nonfarm Payrolls November Preview: Can we agree the labor market is healing?
In addition to a clear downside break of a 14-month-old rising support line around 0.6900, as sustained trading below 61.8% Fibonacci retracement (Fibo.) level of August 2020 to February 2021 upside, near 0.6860, also keeps NZD/USD bears hopeful. That said, the yearly low of around 0.6770 may act as immediate support to watch during the quote’s weakness. However, major attention will be given to a convergence of the descending support line from late August and 78.6% Fibo. level near 0.6710.
Chinese ambassador to the US Qin Gang urges America for early abolition of additional tariffs on the country’s goods.
China is reducing the time needed for approval of travel by US business executives to no more than 10 days
China to make COVID-19 testing more convenient, will allow work during quarantine.
more to come ...
Activity in China's services sector expanded at a slower pace in November amid rising inflationary pressures and continuing small-scale COVID-19 outbreaks, a private survey showed on Friday as reported by Reuters.
''The Caixin/Markit services Purchasing Managers' Index (PMI) fell to 52.1 in November from 53.8 in October, but remained above the 50-point mark that separates growth from contraction on a monthly basis.''
''Caixin's November composite PMI, which includes both manufacturing and services activity, fell to 51.2 from 51.5 the previous month.''
Reuters reported that ''analysts say the services sector, which has been slower to recover from the pandemic than manufacturing, is more vulnerable to sporadic COVID-19 outbreaks and anti-virus measures, clouding the outlook for a much anticipated rebound in consumption in the months to come.''
"Policymakers should still focus on supporting small and midsize enterprises. They should also pay attention to problems including deteriorating job prospects, limited household income growth and weak consumer purchasing power," said Wang Zhe, senior economist at Caixin Insight Group.
"Enterprises are still facing high cost pressures. Policymakers should take inflation seriously."
AUD/USD has been on the move to the downside in Asia, reestablishing the move that was interrupted by a bullish start on Wall Street on Thursday.
It had broken the hourly support ahead of the data as illustrated above. However, the data has failed to move the needle so far despite expanding at a slower clip in services.
A monthly questionnaire issued to purchasing executives in over 400 private service sector organizations yielded responses that formed the basis of the Caixin China General Services PMI (Purchasing Managers' Index). Sales, employment, inventories, and pricing are some of the variables tracked by the index.
A rating of greater than 50 suggests that the services sector is generally increasing, while a reading of less than 50 indicates that it is generally contracting.
A higher than expected figure should be seen as positive (bullish) for the CNY while a lower than expected figure should be seen as negative (bearish) for the CNY.
US Dollar Index (DXY) holds onto the three-day recovery moves, up 0.06% around 96.18 during early Friday.
In doing so, the greenback gauge stays above the 20-DMA and an ascending support line from October 29 amid a firmer RSI line, not overbought, which in turn suggests the quote’s further advances.
However, the 10-DMA level of 96.30 precedes a weekly resistance line near $96.45, to restrict the immediate upside of the DXY.
Should the quote manage to cross the 96.45 hurdle on a daily closing basis, the latest run-up can challenge the yearly peak of 96.94 with eyes on the 61.8% Fibonacci Expansion (FE) of November’s moves, around 97.55.
Meanwhile, pullback moves remain less worrisome until staying beyond 20-DMA and the aforementioned support line, respectively around 95.75 and 95.30.
It’s worth noting that the US Dollar Index becomes vulnerable to visit 94.60 level, surrounding early November’s top, on the break of 95.30 support line.
Read: Nonfarm Payrolls Preview: Jobs’ headline could be a make it or break it in tapering’s decision
Trend: Further upside expected
|01:45 (GMT)||China||Markit/Caixin Services PMI||November||53.8|
|07:45 (GMT)||France||Industrial Production, m/m||October||-1.3%||0.5%|
|08:30 (GMT)||Eurozone||ECB President Lagarde Speaks|
|08:50 (GMT)||France||Services PMI||November||56.6||58.2|
|08:55 (GMT)||Germany||Services PMI||November||52.4||53.4|
|09:00 (GMT)||Eurozone||Services PMI||November||54.6||56.6|
|09:30 (GMT)||United Kingdom||Purchasing Manager Index Services||November||59.1||58.6|
|10:00 (GMT)||Eurozone||Retail Sales (MoM)||October||-0.3%||0.2%|
|10:00 (GMT)||Eurozone||Retail Sales (YoY)||October||2.5%||1.2%|
|11:00 (GMT)||United Kingdom||MPC Member Saunders Speaks|
|13:30 (GMT)||Canada||Labor Productivity||Quarter III||0.6%||-0.8%|
|13:30 (GMT)||U.S.||Government Payrolls||November||-73|
|13:30 (GMT)||U.S.||Average workweek||November||34.7||34.7|
|13:30 (GMT)||U.S.||Manufacturing Payrolls||November||60||45|
|13:30 (GMT)||U.S.||Average hourly earnings||November||0.4%||0.4%|
|13:30 (GMT)||U.S.||Private Nonfarm Payrolls||November||604||530|
|13:30 (GMT)||U.S.||Labor Force Participation Rate||November||61.6%|
|13:30 (GMT)||Canada||Unemployment rate||November||6.7%||6.6%|
|13:30 (GMT)||U.S.||Nonfarm Payrolls||November||531||550|
|13:30 (GMT)||U.S.||Unemployment Rate||November||4.6%||4.5%|
|14:45 (GMT)||U.S.||Services PMI||November||58.7||57|
|15:00 (GMT)||U.S.||Factory Orders||October||0.2%||0.5%|
|15:00 (GMT)||U.S.||ISM Non-Manufacturing||November||66.7||65|
|18:00 (GMT)||U.S.||Baker Hughes Oil Rig Count||December||467|
In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.3738 vs the estimate of 6.3739 and the previous 6.3719.
China maintains strict control of the yuan’s rate on the mainland.
The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.
Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day closing level and quotations taken from the inter-bank dealer.
As per the prior analysis, AUD/USD Price Analysis: High forex vol points to continuation to weekly support, the price remains on a bearish trajectory as follows:
In the daily chart above, the weekly lows are illustrated with 0.6990 eyed as a potential target on a break of 0.7030. For the day ahead, the bears need to break the hourly support as follows:
The bears are taking control below the 0.7120 key level with the price staying below the 21-EMA:
Bears will want to see a break of the 0.7080 support before fully engaging, but the Chinese data could be the catalyst. With that being said, there are prospects of a trapped market into the NFP data today if the price fails to break lower on disappointing Chinese data.
USD/JPY reverses the day-start losses to regain 113.15, following the first positive day in three, during the early hours of Tokyo open on Friday.
The risk barometer pair tracked from the firmer US Treasury yields the previous day to recover while hopes of finding a solution to the South African covid variant, as well as avoiding the US government shutdown seem to recently favor the buyers. However, cautious sentiment ahead of the US Nonfarm Payrolls (NFP) data for November, expected 550K, tests the USD/JPY upside.
US 10-year Treasury Treasury yields bounced off a 10-week low to regain 1.45% level the previous day, down two basis points (bps) to retest the 1.43% mark at the latest.
Fedspeak pushed for a sooner tapering in the last-ditched efforts before the silent period starting from this Saturday, which in turn propelled the bond yields and the US Dollar Index (DXY). Among the key promoters of faster rolling back of easy money, also conveying reflation fears, were Federal Reserve (Fed) Bank of San Francisco President Mary Daly and Richmond President Thomas Barkin.
Also adding to the DXY strength could be softer-than-expected prints of the US Initial and Continuing Jobless Claims for the week, as well as downbeat Challenger Job Cuts for November. That said, the final reading of Japan’s Jibun Bank Services PMI for November rose past 50.7 prior to 53.00.
Furthermore, optimism concerning Omicron’s cure, spread by the UK, joins the recovery in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, to favor the USD/JPY prices.
On the contrary, fears of a negative surprise from the US jobs report and virus woes join geopolitical tension surrounding Russia, Iran and China to test the market sentiment and the USD/JPY prices.
Amid these plays, the US 10-year Treasury yields struggle to extend the previous day’s rebound while the Asia-Pacific equities and the S&P 500 Futures trade mixed by the press time.
Moving on, the virus updates and the geopolitical chatters could offer intermediate direction to the USD/JPY traders ahead of the US NFP.
Read: US Nonfarm Payrolls November Preview: Can we agree the labor market is healing?
USD/JPY holds onto the previous resistance line from March, around 112.75 by the press time. However, the 50-DMA level of 113.40 restricts immediate upside.
WTI crude oil prices struggle to keep the previous day's recovery moves from late August around $67.00 during Friday’s Asian session.
The black gold’s stated rebound portrays the importance of an upward sloping trend line from March 23 with the oversold RSI conditions suggesting further recovery.
However, 61.8% Fibonacci retracement level of March-October upside, around $68.00, probes the oil buyers before directing them to the key 200-DMA hurdle of $69.85.
Also acting as an upside filter is the $70.00 threshold and 50% Fibo. near $71.20.
Alternatively, a daily closing below the multiday-old support line near $64.75 will redirect the WTI bears to attack August month’s low of $61.73.
Following that, the $60.00 round figure may probe the commodity sellers before directing them to March’s low of $57.27.
Trend: Further recovery expected
USD/CAD is on the move and the bulls are in control from a longer-term perspective. The following illustrates the prospects of a run all the way into test the 1,30's in the coming days. However, US Nonfarm Payrolls will be critical in this regard.
The greenback earlier gained after US data showing initial claims for state unemployment benefits rose 28,000 to a seasonally adjusted 222,000 for the week ended Nov. 27, lower than the forecast of 240,000. Today, Payrolls probably surged again, according to analysts at TD Securities.
''A strong trend continues to be signaled by surveys and claims, but our forecast also reflects the latest Homebase data—with a decline in the Homebase series more than accounted for by seasonality. Along with our +650k forecast for payrolls, we forecast a 0.2pt decline in the unemployment rate and a 0.4%m/m (5.0% y/y) rise in hourly earnings.''
The bulls are in charge and there is overhead resistance that could be tested in the coming days near 1.2995.
The weekly outlook has the price on the verge of making a W-formation. There needs to be some more upside, however. The bulls can target the key monthly resistance at 1.3050 once 1.30 is cleared. On the flip side, the W-formation would be expected to attract bears in to test the neck line near 1.2770.
Reuters came out with its optimistic survey results for the market expectations of the Reserve Bank of Australia’s (RBA) next move.
“Against a backdrop of rising inflation in Australia and around the world, the RBA is now predicted to lift its cash rate from a record low 0.10% in the first quarter of 2023,” per November 29-December 2 poll of 35 respondents were published during Friday’s Asian session.
“That's sooner than the second quarter of 2023 forecast in a poll taken almost a month ago, while in a survey taken only two months ago there was no consensus for any rate rise in 2023,” adds Reuters.
A small majority, 16 of 25 economists, expected at least one rate hike by the end of the first quarter of 2023, compared with 11 of 25 economists in the previous poll.
Economists in the Nov. 29-Dec. 2 poll expect a second rate hike in the second quarter of 2023 of 25 basis points to 0.50%. The cash rate is then projected to rise to 0.75% in the final quarter of 2023.
All 34 economists expected the cash rate to stay at 0.10% at the Dec. 7 meeting.
Despite the upbeat Reuters poll on RBA rate hike calls, the AUD/USD refreshes intraday low to 0.7085 as markets brace for the Fed rate hike and awaits Friday’s US jobs report.
Read: AUD/USD bears look to 0.7000 on firmer yields ahead of US NFP
Silver (XAG/USD) remains pressured, paring the previous day’s corrective pullback from a multiday low during Friday’s Asian session.
In doing so, the bright metal seesaws around 78.6% Fibonacci retracement level of an upside from late September to mid-November. Adding to the bearish bias is the descending trend line from November 22.
However, oversold RSI conditions challenge the XAG/USD sellers, which in turn question the bears and raises hopes of a bounce towards the short-term resistance line, near $22.65 at the latest.
Should silver buyers conquer the $22.65 hurdle, the $23.00 threshold and 50% Fibo. near $23.40 can test the upside before driving the prices towards the 200-SMA level of $24.06.
On the flip side, a clear downside break of the stated 78.6% Fibonacci retracement level of $22.20 may respect the $22.00 round figure as an intermediate halt during the fall to the yearly bottom of $21.42.
Overall, silver prices are likely to remain bearish until crossing the 200-SMA hurdle but corrective pullbacks can’t be ruled out.
Trend: Further weakness expected
Having snapped a three-day downtrend, GBP/USD wobbles around 1.3300 during the initial Asian session trading on the key Friday comprising the US jobs report for November.
The cable pair’s improvement could be linked to the market chatters that the UK steps forward to finding the cure to the South African covid variant. However, firmer US dollar ahead of the US Nonfarm Payrolls (NFP) joins Brexit woes to weigh on the quote.
In a landmark achievement for the British scientists, the UK Medicines and Healthcare products Regulatory Agency (MHRA) approved an antibody treatment that it expects to overcome the coronavirus variant such as Omicron. Sotrovimab is a single monoclonal antibody drug joined developed by GSK and Vir Biotechnology that gets the UK MHRA approval.
On the other hand, Irish Foreign Minister Simon Coveney crossed wires while signaling no Brexit deal between the European Union (EU) and the UK over the Northern Ireland (NI) protocol during 2021. However, Northern Ireland Secretary Brandon Lewis said he is optimistic to reach a deal but also cited the odds of triggering Article 16.
While the EU-UK Brexit deal is in limbo, the US-UK post-Brexit trade talks are also fragile as both the nations recently jostled over Washington’s failure to remove tariffs on UK steel and aluminum.
It’s worth noting that the final reading of the UK Manufacturing PMI for November came in softer than initial estimates, adding to the expectations that the Bank of England (BOE) will refrain from a rate hike during the December meeting. Even so, market chatters are on the spike that the “Old Lady” will supersede the Fed to announce the rate hikes.
Talking about the US, the benchmark US 10-year Treasury yields bounced off a 10-week low to regain 1.45% level, up five basis points (bps), on Thursday as Fedspeak pushed for sooner tapering in the last-ditched efforts before the silent-period starting from this Saturday. Among the key promoters of faster rolling back of easy money, also conveying reflation fears, were Federal Reserve (Fed) Bank of San Francisco President Mary Daly and Richmond President Thomas Barkin.
It should be observed that softer-than-expected prints of the US Initial and Continuing Jobless Claims for the week, as well as downbeat Challenger Job Cuts for November, add to the Fed rate hike concerns and favored the GBP/USD bears.
However, it all depends upon the US jobs report for November as the Fed policymakers brace for the crucial decision.
A downward sloping trend line from late October, around 1.3325, guards the immediate upside of the GBP/USD prices ahead of early November’s low near 1.3355. Alternatively, the yearly bottom of 1.3194 stays on the bear’s radar.
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