Daily Market Analysis: 12 December 2016
by Christala Parmaxi, CFTe
Majors’ Daily Performance
The Dollar is still running high against most of the majors, boosted by the ECB policy meeting the previous week and by Mario Draghi comments that no tapering of the QE has been discussed. The big looser of Friday was the Japanese Yen with USDJPY rising to the new record high level of 115.35; the Japanese Yen keeps on depreciating today. The only currency that leads the US Dollar is the Canadian Dollar which is rising due to the appreciation of the oil over the past few days. The Loonie broke the psychological level of 1.32 to the downside against the US Dollar and the pair is still moving lower since new deals came in the foreground during the weekend.
The Non-OPEC oil producers agreed to cut output by 558k barrels per day and the oil and WTI opened the day with a gap to the upside today. With the absence of major economic releases on Monday, the market will probably move in the same direction as it closed last week, but what is going to define greenback’s direction for the rest of the month is FOMC policy meeting on Wednesday. Despite the fact that a rate hike of 25 points is already discounted in the market, Janet Yellen’s words and the new dot-plot forecast will determine Dollar’s direction. If the Chairwoman gives hopes for more than 2 rate hikes within 2016 then we would expect the Dollar to rise higher. However, if she avoids commenting of Fed’s 2017 moves and supports that the upcoming economic data will determine their next moves, then the Dollar could fall sharply.
This week begins and ends quietly since there are no major economic events on Monday and Friday. However, in the meantime there are policy meetings of major Central Banks and most significantly the FOMC policy meeting. During Tuesday’s Asian session the Chinese YoY Industrial Production of November is expected to remain steady at 6.1% while UK’s Consumer Price Index during the European session is expected to be released at 1.1%, 20 points higher than October’s figure.
Wednesday will be the busiest day of the week for traders as there are major economic releases and events. The Japanese Tankan Large Manufacturers and Non-Manufacturers Indexes for the last quarter of the year are scheduled to be released during the early Asian session and they are both expected higher than Q3 figures. During the European Session we are looking for the Claimant Count Change and Average Earning Index from the UK while from the US we will be looking for the Core Retail Sales and Retail Sales of November at lower levels against the previous month. The spotlight of the day will be the FOMC statement and Interest Rate decision at 19:00 GMT and the FOMC Press Conference at 19:30. The Fed is widely expected to hike by 25 points while the press conference will determine the US Dollar’s next moves. Moreover, on Wednesday we get the New Zealand GDP and few hours later during Thursday the Australian Employment change.
On Thursday, two more banks are having their policy meetings, the Swiss National Bank and the Bank of England. Both are expected to keep their interest rates steady at -0.75% and 0.25%. No major changes are usually made after a rate decision of the SNB but we will be watching closely the BoE’s policy meeting since the Governor stated that there is only a limited tolerance for an overshoot of inflation. If the Governor repeats himself during this policy meeting then the Pound could gain ground against the majors and most important against the Euro and the US Dollar. From the US, we are looking for the Philadelphia Fed Manufacturing Index which is expected higher against the last month. Finally, on Friday there will be the releases of the European CPI and the US Building Permits.
The world’s most traded currency closed Friday lower but it failed to test again the record low level of 1.05. Today, the currency is currently recovering at the time of writing and it is expected to test SMA50 and/or the resistance of 1.063. We do not see any clear evidence from the price in order for the pair to manage to break this level today. However, the indicators have turned to the opposite side since ADX indicates positive directions on the hourly chart and both RSI and MACD are sloping higher towards their bullish levels. The major supports are near 1.055 and 1.052 while the resistances lay around 1.06 and 1.063.
The cable is trending between 1.262 and 1.255 for the last 2 trading days while the triple SMAs indicate bearish signals by crossing each other. ADX is on neutral levels while both RSI and MACD are also on neutral territories indicating balance between sellers and buyers. The cable will most probably trade within this rectangle until an expansion arrives. We would trade the moves within the rectangle with clear support and resistance the bands of the pattern.
The Gopher advanced to record high levels since it is the most affected currency by the Dollar’s rally. All the indicators, even price itself, are on overextended bullish levels and we all wonder whether this rally is about to end or not, where USDJPY confirms every single time that the rally is about to last. However, we would expect the pair to rise higher, until the FOMC policy meeting on Wednesday that will determine its future direction. If the FOMC statement is dovish, the currency that is most expected to react to the dovishness is the Japanese Yen. The short term supports are resistances are near 116.1 and 115.3 respectively while on the near term the pair could reach the levels of 119 and 113 according to the Fed’s comments. At the moment, we still keep our bullish view on the pair.
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