European Open Preview – Dollar falls as Senate Republicans weaken; Fed meeting, US & UK data in focus

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  • European Open Preview – Dollar falls as Senate Republicans weaken; Fed meeting, US & UK data in focus

    Here are the latest developments in global markets:

    • FOREX: The dollar was losing ground relative to majors after Republicans lost a Senate seat in Alabama, resulting in a narrower Senate majority for them. Still, there were no sharp movements amongst majors as European traders were starting their trading day, with markets awaiting fresh catalysts to place their positions on a data-busy day.
    • STOCKS: Japanese equities retreated with the Nikkei 225 losing 0.5%; major Asian benchmarks outside Japan were posting gains though with the Hang Seng being last up by 1.6%. Euro Stoxx 50 futures were little changed at 0805 GMT with the same holding true for contracts on the Dow, S&P 500 and the Nasdaq 100.
    • COMMODITIES: WTI and Brent crude were rising, trading not far below $58 and $64 a barrel and adding 0.7% and close to 1.0% respectively. Gold was down, though not by much, trading around $1242 per ounce. Yesterday, the precious metal fell to its lowest since July 20, touching $1235.92.

    European Open Preview – Dollar falls as Senate Republicans weaken; Fed meeting, US & UK data in focus

    Major movers: Dollar falls as Republicans’ Senate majority narrows; markets await fresh catalysts

    The dollar’s index against a basket of currencies was 0.1% down but still not far below yesterday’s four-week high of 94.22. Democrats winning a seat in Alabama, a traditionally conservative state, is troubling Republicans who will now hold a narrower two-person majority in the Senate. This is likely to make it more challenging for them to push through the Trump administration’s agenda into law, though it is not likely to have much repercussions for tax reforms currently deliberated in Congress. Attention for the dollar now shifts to a patch of data as well as the Fed meeting which is to be completed later in the day.

    The greenback was down relative to the yen, euro and sterling, though all three currencies’ gains versus the greenback were limited, with the US currency still trading not far away from multi-week highs tracked against the three rival currencies in recent days.

    The antipodeans continued gaining ground relative to the greenback though their gains were not as strong as in previous days; aussie/dollar was up by 0.15% and kiwi/dollar higher by 0.1%. At its highest, aussie/dollar tracked a one-week high of 0.7580 and kiwi/dollar a one-month high of 0.6961. Australia also saw the release of some positive data on consumer sentiment earlier in the day.

    European Open Preview – Dollar falls as Senate Republicans weaken; Fed meeting, US & UK data in focus

    Day ahead:  Fed policy meeting concludes; UK wage growth might improve

    The two-day Fed policy meeting concludes today with investors projecting the central bank to raise rates by 0.25 percentage points to 1.25-1.50%. However, the focus would not be on the rate announcement which is priced in by the markets, but on the monetary policy statement following the rate decision at 1900 GMT as well as on the Fed chair Janet Yellen’s last press conference at 1930 GMT; her term expires in February. Investors will be paying close attention to the central bank’s latest economic projections and will be eager to hear any updates on the path of rate increases in the coming years.

    Earlier in the day, the US Bureau of Labor Statistics will publish figures on consumer prices for the month of November at 1330 GMT. The headline CPI is expected to stand at 2.2% y/y compared to 2.0% seen in the previous month. Excluding food and energy, the core index will likely remain flat at 1.8% y/y. Note that the Fed compares its inflation target of 2.0% with the core PCE index instead and adjusts its monetary strategy accordingly, as this includes a wider range of consumer products.

    In the UK, employment data will be available at 0930 GMT. Analysts anticipate the claimant count to stand at 3,200 in November compared to 1,100 in October. On the other hand, October’s unemployment rate is expected to inch down to 4.2%, hitting a fresh 42-year low. Good news for British consumers would also arise from average weekly earnings including bonuses if the measure increases from 2.2% y/y to 2.5% in October, as is forecasted by analysts.

    In the eurozone, growth in industrial production is anticipated to recover to 3.5% y/y in October, up from 3.3% seen previously (1000 GMT).

    In oil markets, the EIA weekly report due at 1530 GMT is expected to indicate a smaller decrease in US crude oil stocks for the week ending December 8 relative to the preceding week – the decrease is estimated at 3.759 million barrels versus the previous week’s decline by 5.610m million barrels (the biggest fall in two months). Gasoline and distillate inventories are expected to rise at a softer pace by 2.457 million and 0.902 million barrels respectively. 

    European Open Preview – Dollar falls as Senate Republicans weaken; Fed meeting, US & UK data in focus

    Technical Analysis: Gold oversold and increasingly bearish

    The dollar-denominated yellow metal tumbled to a five-month low of 1236.34 on Tuesday, extending its medium-term downleg from September’s high of 1357.41. Currently it is trading at oversold levels but signs of potential upside movements in the short-term are missing as the RSI is moving sideways in bearish territory below 50. 

    But gold bulls might drive prices higher if FOMC members adopt a dovish stance on the US economic outlook. In this case, gold could climb towards 1260.43, the 61.8% Fibonacci of the upleg from 1204.67 to 1357.41. A close above this area would turn the bias from bearish to neutral, opening the scope for a re-test at the 1281 key level (50% Fibonacci).

    Alternatively, optimism on the US economy could lead to dollar strength and push the metal down to the 1230 key level, while steeper decreases would shift focus to the nine-month low of 1204.67.

    Source: Trade Forex with XM.

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