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Dollar Advances as Commodity Recovery Stalls, ADP and Beige Book Ahead

Dollar Advances as Commodity Recovery Stalls, ADP and Beige Book Ahead

John Kicklighter, Chief Strategist

Talking Points:

  • Dollar Advances as Commodity Recovery Stalls, ADP and Beige Book Ahead
  • British Pound Could Lose Further Rate Ground if Autumn Statement Soft
  • Euro Traders Should Look Beyond the ECB’s Stimulus Plans

Dollar Advances as Commodity Recovery Stalls, ADP and Beige Book Ahead

As the primary pricing currency for commodities, the Dollar suffered at the hands of Monday’s gold and oil surge. Yet, that relative value lever works both ways. This past session, the precious metal and energy market both corrected. While the subsequent commodity move was milder than the week’s opening fireworks, the Greenback gained more traction on the correction rather than the initial move. In part, this likely reflects the tepid conviction of the physical goods’ recovery, but it also speaks to the currency’s position when it comes to relative strength/value. Though, how long this tacit appeal holds out without further improvement in its own circumstances remains to be seen. Headline fundamentals this past session did little to hearten rate forecasts. Fed speeches from Chairwoman Yellen, Vice Chair Fischer, Dudley and Brainard either avoided weighing in on rate timing fodder or took a neutral view.

In the upcoming session, another couple Fed speeches (from Plosser and Brainard) are scheduled, but we may not have to resort to weeding out consequential views and remarks from their obfuscated comments. Far more black-and-white are the Fed’s Beige Book and ADP payrolls report for November. The former is the collective US economic review from the various region for reference at the upcoming (December 17) FOMC rate decision. Despite the month-to-month deviation in its correlation to the official NFPs, the market still considers the proprietary job statistics a good proxy to Friday’s data. With a jump in Treasury yields along with the implied rates in Eurodollar and Fed Funds futures this past session, the updates could do well to feed volatility on this theme. And, though it may not be the Dollar’s primary motivator at the moment with the S&P 500 treading just below record highs, it is worth keeping tabs on the level of sentiment in the market. In its third annual financial market risk assessment for Congress, the Treasury warned the ‘reach for yield’, geopolitical tension and fire sales are lingering risks for the system.

British Pound Could Lose Further Rate Ground if Autumn Statement Soft

What was the foundation to the rise in hawkish views for the BoE? Arguably, the stronger and more persistent than expected pace of economic growth has stood as the backbone for bullish Pound traders. However, with inflation pressures easing back and the economic clip slackening alongside global (European) counterparts; we have seen a significant moderation in the timetable for hikes. Inflation pressures are still weak – the BRC shop price index held at its series-record low and the BoE expects to write a letter for CPI dipping below 1 percent – but the inclusion of a quickly cooling pace of growth could carry far more weight for speculation. Today’s Autumn Statement will weigh in with official forecasts.

Euro Traders Should Look Beyond the ECB’s Stimulus Plans

Anticipation for the ECB to adopt an accommodative bias to end the Euro’s influence on dis-inflation conditions started EURUSD’s retreat from 1.4000. Now below 1.2500, there is much further to go on the monetary policy front. With the official rate decision next week, traders looking for provocation will be looking for any hint – or outright adoption – of a full-scale quantitative easing (QE) program to match the Fed’s and BoJ’s efforts. This can eventually drive the Euro to its next leg, but clarity on this theme before the end of the year is lower probability. In the meantime, the impact of risk aversion on foreign exposure to European markets – including sovereign bonds with record low yields – is underappreciated.

Australian Dollar Slide Slow After Weak 3Q GDP But Rate Forecast Turning Fast

Tuesday morning, the RBA seemed to offer support for the bleeding Aussie dollar by forgoing a more open position towards the possibility of future rate cuts. The currency was lifted modestly against most counterparts and Australian yields jumped. Yet, that early and suspect hawkishness fell apart this morning. The economy posted a weaker-than-expected 0.3 percent 3Q GDP reading which further reminds us of the weak inflation position for the country. Overnight swaps are now pricing in 23bps worth of cuts through 12 months – the most in 14 months.

Oil Rally Stalls But Speculation Continues at a Healthy Pace

The dramatic, intraday reversal US oil posted Monday –the biggest in three years – didn’t seem to have much in the way of staying power. The commodity dropped another 3.1 percent this past session, giving weight to concerns the jump was a short squeeze rather than a committed position shift. While the market has leveled out with this back and forth, the speculation and conjecture continue unhindered. Remarks that Saudi Arabia may cut production if all producers follow suit and possible shuttering of young US energy firms kept the news reels warm.

Emerging Market: Another Six-Year Record Ruble Drop, Brazil Rate Decision Ahead

Capital market assets in the EM steadied Tuesday with a little changed MSCI ETF, while equity and fixed income showed mixed results across the board for the group. In the FX market, however, performance leaned towards losses with yet another disastrous showing for the Russian Ruble (down 4.3 percent – the most in six years). The country issued warnings of a recession in 2015, further driving capital from the sanction hit economy. Ahead, Brazil’s central bank is expected to hike rates (time not given).

Gold Recovery Sputters, ETF Exposure Hits Fresh Lows, Fundamentals Unfavorable

Riding on the coattails of oil’s dramatic run did the gold little good. With the leader stalling, the follower would befall a similar fate. The precious metal only slipped 1.1 percent this past session – compared to the 3.8 percent rally Monday – but the bulls need far more motivation at this level so close to multi-year lows. Looking to ETF holdings – just one area of demand amongst one group – a fresh multi-year low was hit. In this market where yield is in demand, gold will struggle. In risk aversion, the dollar may usurp its haven appeal.

**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

22:30

AUD

AiG Performance of Service Index (NOV)

43.6

Has been trending lower since September 2014

23:50

JPY

Loans & Discounts Corp (YoY) (OCT)

2.20%

Has been steadily increasing this year.

0:01

GBP

BRC Shop Price Index (YoY) (NOV)

-1.90%

It has been contracting every month this year. Might be adding to below target inflation in the UK.

0:30

AUD

Gross Domestic Product (QoQ) (3Q)

0.70%

0.50%

GDP has been slowing down on a QoQ basis..

0:30

AUD

Gross Domestic Product (YoY) (3Q)

3.10%

3.10%

1:00

CNY

Non-Manufacturing PMI (NOV)

53.8

Has been trending lower since June 2014. It has remained above 50 this year.

1:35

JPY

Markit Japan Services PMI (NOV)

48.7

These measure’s previous figures have been showing contraction as there was a contraction in GDP in the 3Q in Japan.

1:35

JPY

Markit/JMMA Japan Composite PMI (NOV)

49.5

1:45

CNY

HSBC China Services PMI (NOV)

52.9

These measures have been declining but both have remained above 50 this year.

1:45

CNY

HSBC China Composite PMI (NOV)

51.7

6:45

CHF

Gross Domestic Product (QoQ) (3Q)

0.30%

0.20%

GDP growth has been slowing down on a QoQ basis as EU slows

6:45

CHF

Gross Domestic Product (YoY) (3Q)

1.40%

1.40%

8:45

EUR

Markit/ADACI Italy Services PMI (NOV)

50.2

50.8

Has started to trend lower trend lower since August 2014.

8:45

EUR

Markit/ADACI Italy Composite PMI (NOV)

49.6

50.4

8:55

EUR

Markit Germany Services PMI (NOV F)

52.1

52.1

These Measures are final revisions; thus, they are not likely to be market moving.

8:55

EUR

Markit/BME Germany Composite PMI (NOV F)

52.1

52.1

9:00

EUR

Markit Eurozone Services PMI (NOV F)

51.3

51.3

9:00

EUR

Markit Eurozone Composite PMI (NOV F)

51.4

51.4

9:30

GBP

Markit/CIPS UK Composite PMI (NOV)

56.2

55.8

Although the measure has been declining since August. It has been above 50 this year.

9:30

GBP

Markit/CIPS UK Services PMI (NOV)

56.5

56.2

10:00

EUR

Euro-Zone Retail Sales (YoY) (OCT)

1.60%

0.60%

Retail sales have contracted in September; but are expected to pick up this coming release

10:00

EUR

Euro-Zone Retail Sales (MoM) (OCT)

0.50%

-1.30%

12:00

USD

MBA Mortgage Applications (NOV 28)

-4.30%

Can help predict housing demand.

13:15

USD

ADP Employment Change (NOV)

222K

230K

Measure shows more than 200,000 jobs per month are being created in 9 straight months out of the year after February. Thus, this data has been showing a stronger US labor market.

15:00

CAD

Bank of Canada Rate Decision (DEC 3)

1.00%

1.00%

Canada’s 3Q GDP figures beat forecasts and unemployment has been falling.

15:00

USD

ISM Non-Manufacturing Composite (NOV)

57.5

57.1

Has been rising this year and has remained above 50 this year.

GMT

Currency

Upcoming Events & Speeches

10:30

EUR

German to sell EU3 BLN 0.25% 2019 Bonds

12:30

GBP

Chancellor Osborne Makes Autumn Statement to Parliament

17:30

USD

Fed’s Plosser Speaks on Economic Outlook in Charlotte, NC

19:00

USD

US Federal Reserve Releases Beige Book

19:00

USD

Fed’s Brainard Speaks on Financial Stability in Washington

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

14.0100

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

6.1750

7.2900

Resist 1

13.6800

2.3000

11.8750

7.8075

1.3250

Resist 1

7.5000

6.0900

7.0000

Spot

13.5823

2.2315

11.1048

7.7548

1.2974

Spot

7.4186

5.9681

6.7772

Support 1

13.0300

2.0700

10.2500

7.7490

1.2000

Support 1

6.7750

5.8000

6.3145

Support 2

12.8350

1.7500

9.3700

7.7450

1.1800

Support 2

6.0800

5.7300

6.1300

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.2573

1.5766

117.89

0.9723

1.1367

0.8812

0.8030

146.88

1214.79

Res 2

1.2548

1.5738

117.55

0.9700

1.1347

0.8790

0.8008

146.50

1207.54

Res 1

1.2523

1.5709

117.21

0.9677

1.1327

0.8769

0.7986

146.12

1200.28

Spot

1.2473

1.5652

116.54

0.9632

1.1286

0.8726

0.7943

145.36

1185.78

Supp 1

1.2423

1.5595

115.87

0.9587

1.1245

0.8683

0.7900

144.60

1171.28

Supp 2

1.2398

1.5566

115.53

0.9564

1.1225

0.8662

0.7878

144.22

1164.02

Supp 3

1.2373

1.5538

115.19

0.9541

1.1205

0.8640

0.7856

143.84

1156.77

v

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

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