Market Analysis: 5 December 2016
by Christala Parmaxi, CFTe
The US Dollar & The NFP Report
It seems that the phase of the Greenback as the leading currency driving the markets is about to end. It was “a November to Remember” for the US markets but it US Dollar’s investors did not react to the latest economic releases such as the NFP report and unemployment rate although they were supportive for the US economy. This gives us a first hint for the market reversal, or at least at a correction. The NFP report was released at 178K beating expectations of 175K while the figure of October was revised downwards by 19K. Moreover, the unemployment rate reached its lowest figure since August 2007 since it was released at 4.6% against the previous 4.9% figure which was equal with expectations as well. The December rate hike is now rated with a 100% likelihood of increase from the Fed Fund Futures but this is more than already priced in the markets.
The Euro & The Italian Referendum
On Sunday, December 4th, the Italians were about to vote on the constitutional reform proposed by the Prime Minister Matteo Renzi. The proposal of the PM suggested the reduction of the number of senators from 315 to 100, ending the bicameral system of the Italian parliament in which both the Senate and the Lower House have equivalent powers. The proposal aimed to contain the institutions’ operation costs. The Italians said “No” by 60% to 40% and consequently, as it was expected, Mr. Renzi resigned. The outcome, although it was widely expected, is deemed to be negative for the Italian Economy and for the European Economy as a whole.
The world’s most traded currency opened the week with a gap lower and it recorded a 21–months’ low reaching the level of 1.0505. However, Euro bulls are leading the day since the Euro is trading higher after recording this low level. In total, the Euro lost 150 pips against the US Dollar during the first two hours of the market opening while it gained them back as soon as the European market opened. Euro bulls indicated from the end of the previous week that they came to stay this time and even the referendum was not able to stop them. We would expect the pair to correct to the upside within the next few days, before the ECB monetary policy meeting on Thursday. The question now is whether we will have a December to remember for the Euro.
Today, we are expecting to the US ISM Manufacturing PMI which is predicted slightly higher than the last month, at 55.4 against 54.8. Moreover, there are two speeches scheduled for today, Federal Reserve Bank of New York President William Dudley speaks on the macroeconomic outlook and what it means for New York before the Association for a better New York and the Bank of England Governor Mark Carney at Liverpool John Moores University. During tomorrow’s Asian Session the Reserve Bank of Australia will have its policy meeting in which the interest rate is expected to remain unchanged at 1.5%.
The world’s most traded currency expanded right after the Asian morning gap reaching almost 3-week high. We would expect the currency to follow a corrective move within a trading range in the short term and then move higher ending the week at around the level of 1.86. Of course, the move will depend on Thursday’s policy meeting and the decision on the QE. Technically, the pair is on overextended positive direction while the momentum has shifted to the upside after today’s expansion. The resistance levels to be watched are near 1.073, 1.08 and 1.085 while the downside risks are near the supports of the Triple SMAs at 1.063 and 1.056.
The Cable is clearly running on a sharp uptrend with the price trying to break the resistance of 1.274 for the 6th time today at the time of writing. However, there are negative divergence between the price and MACD and between the price and RSI which keep us back from buying the pair at this level. If the pair keeps rising above 1.275 and manages to close above this level then a buy order would be confirmed. However, as long as the pair is not able to break the resistance of 1.274 we keep our neutral stance. The downward risks are near the support levels of 1.267, 1.262 and 1.257 while the bullish targets are near the levels of 1.279 and 1.2855.
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