Hawkish Fed speak lifts Dollar, AUD/USD, EMFX plummet

Stocks Slump, Risk-Off Ahead of a Busy Data Week

Summary

Following last week’s 50 basis point rate hike by the Fed, Cleveland head Loretta Mester said on Friday that her estimate for rate increases is higher than those of her colleagues.

The Dollar Index (DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies, rebounded to 104.15, up 0.86% from 103.22 Friday.

Risk leader, the Australian Dollar (AUD/USD) plummeted to 0.6704 from 0.6863, down 2.33%. The US Dollar also made strong gains versus the Asia/EMFX. USD/CNH (Dollar-Offshore Chinese Yuan) rallied 0.67% to 6.9900.

Sterling (GBP/USD) tumbled 1.85% lower to 1.2193 from 1.2429. The Euro (EUR/USD) slid 0.42% top 1.0636 (1.0686 Friday). Against the Japanese Yen, the Dollar (USD/JPY) rocketed to 137.70 (135.45).

Wall Street stocks tumbled. The DOW slumped to 33,243 from 34,023 while the S&P 500 dropped to 3,902 (4,002). Other global stock markets fell. Australia’s ASX 200 plunged to 7,143 (7,204).

US bond yields were mixed, with the 2-year (4.24%) vs 10-year (3.45%) inversion widening to -73 bps from -54 a month ago. Yields on longer dated US treasuries often fall below shorter-term yields ahead of a recession.

Economic data released Friday saw Australia’s Flash Manufacturing PMI ease to 50.4 from 51.3. Japan’s Flash PMI dipped to 48.8 from a previous downward revised 49.0 (from 49.4).

UK Retail November Retail Sales (m/m) fell to -0.4% from a previous 0.9%, and missing estimates at 0.3%. On an Annual basis, UK Sales fell -5.9%, matching a previous result.

Germany’s December Manufacturing PMI climbed to 47.4 from 46.2, beating median forecasts at 46.3. The Eurozone December Manufacturing PMI was up at 47.8 from 47.1 and estimates at 47.1.

The Eurozone Harmonised Index of Consumer Prices climbed to 10.1% annually from 10.0%.

UK S&P Global Manufacturing PMI dipped to 44.7 from 46.5, lower than expectations of 46.3.

Eurozone Trade Deficit narrowed in October to -EUR 26.5 billion from a previous -EUR 34.4 billion and better than median expectations of -EUR 48.9 billion.

Canada’s November New Housing Price Index (November) eased to 4.1% annually from a previous 5.1%. Canada’s October Wholesale Sales (m/m) rose to 2.1% from a previous -0.2%, beating median forecasts at 1.3%.

US December S&P Preliminary Global Manufacturing PMI fell to 46.2, down from expectations, and a previous 47.7. US Global Services PMI were also lower to 44.4 from 46.2.

AUD/USD – Risk-off pulled the Aussie Dollar 2.33% lower to 0.6704 finish in New York from Friday’s open at 0.6863. In choppy trade, the Aussie Battler plummeted to an overnight low at 0.6674. Meantime, the overnight high traded was at 0.6871.

(Source: Finlogix.com)

GBP/USD – Sterling slid to 1.2193 at the close of trade in New York Friday, down 1.85% from its opening at 1.2429. In volatile trade of its own, the British currency was pounded to an overnight low at 1.2156. The overnight high recorded was at 1.2425.

USD/JPY – Soared to 137.70 at the close of trade on Friday from its opening at 135.45, up 1.66%. The overnight high traded was at 138.18 while the low recorded was at 135.23. Trading was once again volatile in this currency pair, and we can expect more of this heading into the year-end.

EUR/USD – The Euro slid under the weight of broad-based US Dollar strength, to 1.0636 from Friday’s open at 1.0686. The overnight low traded for the shared currency was at 1.0599. On the topside, the overnight high recorded was at 1.0736.

On the lookout

As we head into the last full week of trading before the Christmas break, expect more volatility with liquidity thinning.

The economic calendar starts off the week with a light release today but picks up tomorrow and continues all the way up to Friday.

Today kicks off with New Zealand’s BusinessNZ Services Index (f/c 54.5 from 57.4 – ACY Finlogix).

Earlier New Zealand’s Westpac Bank released its Consumer Confidence Index which slid to 75.6 from a previous 87.6, and lower than estimates at 88.5.

China follows next with its Foreign Direct Investment (FDI) for November (y/y f/c 12% from 14.4%).

Germany kicks off Europe with its December IFO Business Climate Index (f/c 87.4 from 86.3 – ACY Finlogix).

The UK is next with its CBI Industrial Trends Orders for December (f/c -9 from a previous -5 -ACY Finlogix).

Canada releases its November PPI (y/y f/c 11% from 10.1% - ACY Finlogix), Canadian Rae Materials Price Index for November (m/m f/c 0.4% from 1.3%; y/y f/c 9.7% from 9% - ACY Finlogix).

The US rounds up today’s reports with its NAHB December Housing Market Index (f/c 34 from 33).

Tomorrow sees the Bank of Japan’s Interest Rate and Policy meeting and decision.

Australia’s RBA releases its latest Meeting Minutes.

Trading perspective

The Greenback extended its rebound versus all Rivals on Friday.

Risk aversion ahead of the weekend and into the last full week before Christmas saw a move back in US Dollars.

Hawkish rhetoric from Cleveland Fed President Loretta Mester fuelled the Greenback’s advance.

Wall Street stocks fell anew. As we head into what most currency trader’s term as the “silly season”, expect the risk-off stance to dominate.

Which is overall supportive for the US Dollar.

The Dollar Index (DXY) bottomed out last week at 103.05, settling on Friday at 104.15.

In the currency environment, the DXY has scope to move higher.

AUD/USD – Further broad-based US Dollar strength will continue to weigh heavily on the Aussie Battler. On Friday, the Australian Dollar closed at 0.6704, down 2.33% from Friday’s open at 0.6863. On the day, look for immediate support at 0.6675 and 0.6645 to hold. On the topside, immediate resistance is found at 0.6735 and 0.6770. Look for further volatile trade in a likely range today of 0.6675-0.6775. Trade the range.

EUR/USD – Slip sliding away, the shared currency dipped to 1.0636 down from Friday’s 1.0686. On Friday, the Euro soared to an overnight high at 1.0736 before easing in late New York. Today, look for immediate support at 1.0600 and 1.0570 to hold. On the topside, immediate resistance lies at 1.0670, 1.0700 and 1.0730. Look for more volatile trade in the Euro today with a likely range of 1.0585-1.0725. Trade the range shag on this one today.

GBP/USD – Sterling sank under the weight of a broadly based stronger Greenback, finishing in late New York at 1.2193 (1.2429 Friday), down 1.85%. On the day, look for immediate support at 1.2160 followed by 1.2130. On the topside, immediate resistance lies at 1.2230 followed by 1.2260 and 1.2300. Trade the range, the preference is to buy GBP dips to 1.21.

USD/JPY – The Dollar soared against the Japanese Yen supported by hawkish Fed rhetoric. Overnight high traded was 138.18 before easing to close at 137.70 (135.45 Friday). US two-year bond yields were up three basis points to 4.24%. On the day, immediate resistance is found at 138.00 and 138.30. Immediate support is found at 137.40, 137.10, and 136.80. Look for the Greenback to keep its bid versus the Japanese currency in a likely range today of 136.20 to 138.20. Trade the range today.

Have a good Monday and trading week ahead all.