DXY slides, stock rally; Yield curve steepens ahead of US CPI
Summary: Risk appetite increased after vaccine makers Pfizer and BioNTech said a third injection may be effective in fighting the omicron variant according to the results of a lab study. The VIX Index, a popular measure of volatility based on the US S&P 500 stock index, and often referred to as the “fear gauge,” slipped 9% to 19.90 from 21.89 yesterday. Ahead of tomorrow’s US CPI report, the yield curve for Treasuries steepened. The 10-year US bond rate climbed to 1.51% (1.48%) while the 2-year Treasury yield fell 2 basis points to 0.67%. In the forex market, the euro (EUR / USD) rebounded 0.67% to 1.1347 from 1.1260 yesterday in choppy trading. Speculative short bets on the euro rushed to hedge in conditions typical of lean December conditions. The shared currency also benefited from short hedging on crosses (EUR / GBP, EUR / JPY). A popular gauge of the greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) slipped 0.49% to 95.90 from 96.35 yesterday. The British Pound closed virtually at 1.3235 (1.3236) after trading in a volatile range between 1.3159 and 1.3261. FX leader in resources, the Australian dollar (AUD / USD) extended its gains, rising 0.76% to 0.7177 (0.7117). The Canadian loonie ended unchanged against the US dollar at 1.2647 after the Bank of Canada left its overnight rate unchanged at 0.25%. The greenback ended up changing little against the Japanese yen at 113.65 from 113.60 yesterday. Against Asian and emerging market currencies, the dollar declined slightly. USD / SGD (Dollar-Singapore Dollar) dipped 0.37% to 1.3611 (1.3660) while USD / THB (Dollar-Thai Baht) was last at 33.43 against 33, 63 yesterday.
Wall Street shares edged up. The DOW closed at 35,753 from 35,700 while the S & P500 climbed to 4,697 (4,683 yesterday). The US NASDAQ rose 0.3% to 16,367 (16,275).
Data released yesterday saw Japan’s annual bank lending easing 0.6% in November from a previous 0.9%. Japan’s current account increased to + JPY 1.03 trillion from + JPY 0.76 trillion. Japan’s third-quarter GDP fell -0.9%, down from -0.8% previously, which was also the median forecast. Sentiment by economic watchers in Japan slipped to 56.3 from expectations of 57.3. The French payroll for the third quarter increased by 0.5%, unchanged from the previous 0.5%. JOLTS job openings in the United States reached 11.03 million, from the previously revised upward 10.60 million.
- EUR / USD – the common currency rallied against the greenback to reach its best result this week, rising 0.67% to 1.1347. Overnight, the euro climbed higher at 1.1351 as speculative shorts took cover. Traders pushed EUR / USD to an overnight low of 1.1267 before the rebound.
- AUD / USD – The Aussie Battler extended its gains against the US dollar, closing at 0.7177 (0.7117), up 0.76%. The risk position of the market led to a rebound in commodity prices. The price of Comex copper ended up 1.24%, helping AUD / USD. The night traded high was 0.7184.
- USD / JPY – against the Japanese yen, the dollar fell from 113.60 to 113.65. The rebound in US 10-year bond yields took USD / JPY to an overnight high of 113.95 before easing to its close in New York. The overnight low traded was 113.31.
- USD / CAD – the greenback closed flat against the canadian loonie at 1.2647. Overnight, USD / CAD traded low at 1.2604 before leveling off to climb to its New York close. The Bank of Canada left its overnight rate unchanged (0.25%). While the BOC has said it expects inflation to remain high, it will moderate in the first half of next year (2022).
On the lookout: Another light economic calendar is in store for today ahead of tomorrow’s US CPI report. Earlier, New Zealand released its third-quarter manufacturing sales, which fell -2.2% below median expectations of 4.2%. The Kiwi (NZD / USD) fell to 0.6805 from its New York close at 0.6813. Australian RBA Governor Philip Lowe is due to speak at Australia’s Payments Network Virtual Summit (9:05 am Sydney). Japan publishes its BSI manufacturing index (f / c 5.3 versus 7.0 previously). The United Kingdom follows with its RICS House Price Balance (f / c 70% against 70% previously). The RBA publishes its RBA Bulletin (including relevant economic articles, speeches, statistics). China follows with its annual CPI for November (f / c 2.5% from 1.5% – FX Street), the Chinese PPI for November (12.6% from 13.5% – FX Street ). Japan follows with its November machine tool orders (no forecast, the previous one was 81.5%). Germany launches European data with its October trade balance (f / c + 13.4 billion euros against + 13.2 billion euros – FX Street), the German current account for October (f / c + € 19 billion versus + € 19.6 billion – FX Street). Switzerland publishes its economic forecasts from the SECO (State Secretariat for Economic Affairs). The United States supplements today’s economic reports with their weekly jobless claims (f / c 218,000 vs. 222,000 – Forex Factory).
Commercial perspective: The market risk position should continue under typical December conditions. We should expect to see choppy trading in wider ranges. As the Dollar Index (DXY) slipped 0.49% to 95.90, much of the movement came from the EUR / USD pair (which weighs almost 60% in the DXY). This move was the result of short hedging the euro and other currencies against the US dollar. Ahead of Friday’s highly anticipated US CPI report, we should see broad support for the greenback emerging at current levels.
- EUR / USD – The euro climbed to 1.1351 higher overnight since opening 1.1260 yesterday. Immediate resistance can be found at 1.1360 followed by 1.1390. The next resistance level is at 1.1410. On the downside there is immediate support at 1.1310, 1.1280 and 1.1250. The overnight low traded was 1.1267. Look for other choppy exchanges in a likely range today of 1.1270 to 1.1370. I prefer to sell EUR / USD rallies at 1.1370.
- AUD / USD – The Aussie Battler extended its 0.76% jump to 0.7177 at the end of New York from 0.7117 yesterday. A rebound in commodity prices, a generally weaker greenback and increased risk appetite supported AUD / USD. For today, expect immediate resistance at 0.7185 (overnight high at 0.7184). The next resistance level is at 0.7215 followed by 0.7245. Immediate support can be found at 0.7145 and 0.7115 (overnight low traded was 0.7117). Also look for jerky movements in this puppy, possibly between 0.7120 and 0.7190. The preference is to sell Australian rallies. I was wrong in my ranges yesterday. But still prefer to sell AUD / USD rallies, even higher or slightly higher than current ranges.
- USD / JPY – this currency pair continues to be a trade, with the overall range yesterday between 113.31 (overnight low) and 113.95 (overnight high). USD / JPY closed at 113.65 (113.60 yesterday). A three basis point rise in the yield on US 10-year bonds (1.51%) will keep this currency pair strong. Immediate resistance stands at 113.95 followed by 114.15. On the downside, immediate support can be found at 113.30 and 113.00. Look for consolidation in a likely range today between 113.35-114.05. Simply swap the range shag on this puppy.
- GBP / USD – The British pound did not advance against the US dollar, ending at 1.3235 from 1.3236 yesterday. Overnight, the British currency traded higher at 1.3261. That puts immediate resistance today at 1.3260. The next level of resistance is at 1.3290 and then at 1.3720. The immediate support for today lies at 1.3205, 1.3185 and 1.3155. Look for a consolidation of the British Pound in a probable range today between 1.3170 and 1.3270. The risk position of the market will maintain the support of the British currency. Look to buy dips today.
Remember to keep those tin helmets. Have a top Thursday in front of everyone. Have a good negotiation!