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The Dollar Index (DXY) picked up into the Friday FX market close, closing the final trading day of the week close to 90.80 with gains of just under 10
  • DXY pairs losses in the final hours of FX trade and manages to close in the green close to 90.80.
  • However, DXY still closed the week with steep losses of just over 1.0%.

The Dollar Index (DXY) picked up into the Friday FX market close, closing the final trading day of the week close to 90.80 with gains of just under 10 points or 0.1%.

USD gasps for breath

It’s been a tough week for USD to say the least. DXY was as high as 92.00 on Monday, reversing aggressively to the downside to hit lows beneath 90.50 on Friday, a drop of more than 1.2% at worst levels. A much-needed technical recovery, or bout of profit-taking appears to have been in play in the final hours of trade, but whether this very minor recovery can continue into next week remains to be seen.

The US dollar has been hit this week on the usual dollar bearish cocktail of factors including US fiscal stimulus and vaccine hopes, dovish Fed expectations and an improved 2021 growth outlook.

Moreover, following Friday’s jobs report, many analysts still see risks for USD as being tilted towards further downside; soft labour market data strengthens the case for further Fed action (dovish and USD negative) as well as more fiscal stimulus (risk on so USD negative).

The S&P 500, Dow Jones and Nasdaq Composite indices all posted record high closes, up 0.9%, 0.8% and 0.7% at just under 3700, 30,218 and 12,464 respec
  • Major US equity bourses rallied into the close of US cash trade, each closing at record highs and SPX nearly surpassing 3700.
  • A soft US labour market report was seen as boosting the chances of fiscal stimulus given, hence was taken as good news.
  • President-elect Biden calls for stimulus and suggests any deal this year will be just the start.

The S&P 500, Dow Jones and Nasdaq Composite indices all posted record high closes, up 0.9%, 0.8% and 0.7% at just under 3700, 30,218 and 12,464 respectively.

Equity markets seem to have caught the scent of stimulus; Friday’s soft US labour market numbers appear to have been taken as increasing the chance that the US economy will soon be received stimulus from both fiscal and monetary policymakers. Indeed, US President-elect Joe Biden reiterated calls for more coronavirus aid and said that any stimulus bill passed this year would be just the start, whilst US Speaker of the House Nancy Pelosi spent the day jawboning about talks with Senate Majority Leader Mitch McConnell. Meanwhile, FOMC members reiterated the bank’s dovish stance, with rates likely to be held at zero for the foreseeable future, ahead of this month’s meeting on 16 December.

As a recap; the US economy added just 245K jobs in November according to the Bureau of Labour Statistics (BLS), and though the unemployment rate dropped to 6.7% from 6.9%, this was due to a decline in the participation rate to 61.5% from 61.7%. BLS said that 3.9M Americans were prevented from looking for work in November due to the pandemic, up from 3.6M in October.

Elsewhere, a key risk worth noting is that of the possibility of a US Government shutdown from 11 December. According to sources, there is a growing sense that a one-week stopgap bill (which would push back the start of the government shutdown by one week) might be necessary, something which market commentators have taken as a sign that talks on averting the government shutdown have not been going as quickly hoped. Should the end of next week arrive with still no deal on continued government funding, equity markets may have to stop ignoring this risk.

S&P 500 key levels

 

United States CFTC S&P 500 NC Net Positions dipped from previous $-13.4Kto $-24.4K
GBP/USD has sunk back towards lows of the day in the 1.3420s as Brexit deal hopes again wane and USD picks up amid pre-weekend profit-taking. The pair
  • GBP/USD is back close daily lows after EU Chief Negotiator Barnier announced no deal has been reached just yet.
  • Talks have been paused and UK PM Johnson and EU Commission President von der Leyen will discuss the state of play tomorrow.

GBP/USD has sunk back towards lows of the day in the 1.3420s as Brexit deal hopes again wane and USD picks up amid pre-weekend profit-taking. The pair now trades just under 20 pips lower om the day or down slightly more than 0.1%.

Brexit hopes fade

EU Brexit Negotiator Michelle Barnier issued a statement on Twitter saying that after a week of intense negotiations in London, both sides agreed that the conditions for an agreement had not been met, as significant differences on the issues of level playing field, governance and fisheries persists. Barnier added that the two sides agreed to pause talks to allow time for the briefing of principals on the state of negotiations. EU Commission President von der Leyen and UK PM Johnson will discuss that state of play on Saturday, Barnier added.

Whilst markets had been warned by a number of journalists that no deal would be reached on Friday, news that talks had been paused may have triggered some concerns, hence why GBP has slipped further down the G10 performance ranking as market participants head for the door.

However, hopes for a breakthrough this weekend will continue to linger ahead of tomorrow’s conversation between Johnson and von der Leyen. If they do find a compromise and a deal does get signed off this weekend, then markets will likely react with jubilation at the Monday Asia open. However, the French in particular have been making it clear that they do not want any more concessions from the EU side and will veto any deal they do not like.

A deal that is palatable to both the UK and (most of) EU may not be good enough for the French. Overcoming French resistance to aspects of any agreement they don’t like is thus a significant hurdle that ought to tame GBP upside when/if a deal is announced.

USD nurses this week’s losses

Contributing to GBP/USD’s downside in recent trade has been a broad pick up in USD, with the Dollar Index (DXY) recovering back into positive territory on the day, though still remaining subdued well below the 91.00 level.

USD has been slammed this week on the usual dollar bearish cocktail of factors including US fiscal stimulus and vaccine hopes, dovish Fed expectations and an improved 2021 growth outlook. Thus, perhaps it is only right that the buck sees some respite, amid potential profit-taking.

Many analysts still see risks for USD as being tilted towards further downside; Friday’s jobs report makes further Fed action (dovish and USD negative) as well as more fiscal stimulus (risk on so USD negative) more likely.

GBP/USD finds new range

Primarily as a result of an extension of USD weakness, GBP/USD has broken out of its former 1.3300ish-1.3400ish range to find a new range in the 1.3400s to lower 1.3500s at the end of the week. The pair is likely to remain choppy and difficult to trade, but to the downside, the 1.3400 level ought to offer decent support and to the upside, this week’s 1.3539 high is likely to offer some resistance.

Japan CFTC JPY NC Net Positions increased to 47.5K from previous 40.2K
United States CFTC Gold NC Net Positions climbed from previous $243.9K to $260.3K
Australia CFTC AUD NC Net Positions: $-10.8K vs previous $-5.3K
United Kingdom CFTC GBP NC Net Positions increased to -7.9K from previous -17.1K
United States CFTC Oil NC Net Positions dipped from previous 522.6Kto 517.2K
European Monetary Union CFTC EUR NC Net Positions up to ?139.9K from previous ?138.2K
USD/JPY has risen back above the 104.00 level in wake of Friday?s US labour market report for November. The pair is off 104.23 highs but still trades
  • US yields have risen and the yield curve steepened since softer than expected US jobs data, pushing USD/JPY higher.
  • USD/JPY has climbed above 104.00, with risk on equity market flows also supportive.

USD/JPY has risen back above the 104.00 level in wake of Friday’s US labour market report for November. The pair is off 104.23 highs but still trades with gains of around 30 pips of 0.3% on the day.

Rising US yields, risk-on flows hurt JPY

The US economy added just 245K jobs in November according to the Bureau of Labour Statistics (BLS), and though the unemployment rate dropped to 6.7% from 6.9%, this was due to a decline in the participation rate to 61.5% from 61.7%. BLS said that 3.9M Americans were prevented from looking for work in November due to the pandemic, up from 3.6M in October.

However, Friday’s downbeat data has been taken as good news by the market; the S&P 500 has rallied to fresh all-time highs and US government bonds have sold off, with the 10-year yield rising 5bps to 0.97%, while the curve has also steepened with the 2s/10s also rising about 5bps to 0.816%. Soft jobs data is being seen as making near-term US fiscal stimulus more likely, given the pressure it puts on Congress to act swiftly to avert a further slowdown in the labour market. Once Congress does act and deliver stimulus, the economy will recover faster, justifying the rise in stock prices (or so the logic goes…).

Risk on flows, in general, has weighed on haven FX on Friday; USD, CHF and JPY make up three of the bottom four G10 FX performers on the day. However, the US dollar is outperforming JPY as a result of the rise in and steepening of the US yield curve, which makes parking cash in US government bonds (and buying USDs to do so) more attractive relative to investing in Japanese Government Bonds.

USD/JPY rangebound

USD/JPY’s rise on Friday has signalled that the pair is now in a new range. To the upside, the 24 November and 2 December highs mark the top of the range in the 104.70s. Meanwhile, to the downside, the 18 and 23 November and 3 December lows in the 103.60s mark the bottom of the range.

USD/JPY one hour chart

EUR/USD is consolidating around 1.2150 level in wake of softer than expected US jobs data that in the end have not delt lasting damage to the US dolla
  • EUR/USD has been driven primarily by the dollar side of the equation on Friday, trading around 1.2150. 
  • USD has not sustained lasting damage in wake of softer than forecast labour market data.

EUR/USD is consolidating around 1.2150 level in wake of softer than expected US jobs data that in the end have not delt lasting damage to the US dollar. The pair, which resides between 1.2132 lows than to 1.2177 highs, trades flat on the day. Indeed, it seems as though the dollar bears are finally taking a breather after this week’s relentless USD beating. The Dollar Index is down over 1% on the week, and EUR/USD is up roughly 1.5%.

What next for EUR/USD?

This week’s relentless EUR/USD rally, spurred by a combination of vaccine and fiscal stimulus optimism that has kept broader market risk appetite buoyant (and US equities trading at record highs), is likely to have turned some heads at the ECB.

But words may not be enough to undo this rally as they were over summer, indeed markets seemingly will prefer to see action at next week’s meeting. Back at the end of October, when the ECB last met, talk was of a big easing package. At the time, the Eurozone was heading back into lockdown amid a second wave of Covid-19.

However, much has changed since then; vaccines news and the election of Joe Biden has materially brightened the Eurozone’s economic outlook for 2021 and, prior to the start of the pre-meeting blackout, the dovish tone of the ECB back in November had appeared to become more tempered. No need to ease financial conditions further, said ECB’s Isabelle Schnabel this week, rather just prolong the duration of easy financial conditions. In other words, a lengthening of the duration of the ECB’s QE and TLTRO programmes, rather than an expansion. Indeed, ECB sources on Friday morning suggested a 12-month extension to the latter is a serious consideration.

How EUR will react to the above remains to be seen, but the Eurozone’s growing real-rate advantage over the US (partly as a result of Eurozone CPI slipping towards zero) has supported EUR/USD over the last few months. If the ECB continues to fail to inspire confidence in markets that its can credibly meet its inflation target, then more EUR upside might yet lay ahead.

All of the above might not even matter if USD continues to fall at its current rate. Indeed, though USD did not sustain lasting damage in wake of Friday's jobs report, many still argue that risks remain to the downside given how Friday's jobs report makes makes further Fed action (dovish and USD negative) as well as more fiscal stimulus (risk on so USD negative) more likely. Meanwhile, the best arguments for USD strength right now are to do with rising US bond yields and the fact the market is already super short USD, with some kind of short-squeeze likely overdue.

One downside risk to EUR that is worth noting is the current deadlock regarding the EU recovery fund and budget. Poland and Hungary reiterated their opposition and that they will continue to use their vetoes as long as rule of law provisions are in play. Meanwhile, the EU is starting to talk tougher in response, with EU Economy Commissioner Paolo Gentiloni saying on Friday morning that the EU will not surrender to Hungary and Poland's veto on the recovery fund and will go on without them if needed. Should EU stimulus face serious delay, this could hurt the Eurozone recovery in 2021 and hurt EUR.

EUR/USD key levels

 

United States Baker Hughes US Oil Rig Count: 246 vs 241
The S&P 500 index trades at intra-day record highs above 3690 on the final trading day of the week, as traders eye a test of 3700 in the near future.
  • The S&P 500 has rallied further in recent trade to around the 3690 level as hopes for government fiscal aid grow.
  • At present, the index trades with gains of around 0.7%.

The S&P 500 index trades at intra-day record highs above 3690 on the final trading day of the week, as traders eye a test of 3700 in the near future. That means the index is up around 24 points or 0.7% on the day.

Fiscal stimulus optimism growing, plus good vaccine news

A few bullish headlines are contributing to hopes that the US Congress can forge a deal on coronavirus economic aid and avert a government shutdown on 11 December. US House Speaker Pelosi told the media that her and McConnell had spoken about tying any Covid-19 relief package to an the bill that would keep the government open, but noted that it is not a done deal yet and issues remain unresolved. Meanwhile, Fox News reported that Senate Republicans appear to be open to the $908B stimulus plan floated by the bipartisan group of Senators.

Elsewhere, seemingly in contradiction to reports late in the Thursday US session that triggered some short-lived downside in US equity markets, Pfizer and BioNTech have reportedly made most of their 2020 vaccine doses already and are on track to reach their 2020 goals. Reports on Thursday alleged they would miss their production goal by half in 2020. Meanwhile, the duo reiterated their confidence that they will be able to deliver 1.3B doses by the end of 2021.

Bad data is good data

Bad data is good data again it seems. The November US labour market report was softer than expected, with the US economy adding just 245K jobs (expected was gains of 469K) and though the unemployment rate dropped 0.2% to 6.9%, this was driven by a 0.2% drop in the participation rate to just 61.5%, still nearly 2% below pre-pandemic levels.

But this failed to hurt US equity market sentiment and seems to instead have given further tailwind to the rally, given that soft data is likely to 1) put pressure on the US Congress to deliver fresh stimulus prior to the Biden administration taking office in January and 2) put pressure on the Fed to deliver more stimulus later in the month via tweaks to the guidance, composition or even size of its QE programme.

 

 

Analysts at MUFG Bank, recommend the idea of a long AUD/USD trade reflecting their expectation of a weaker US dollar in the near-term. They see a pote

Analysts at MUFG Bank, recommend the idea of a long AUD/USD trade reflecting their expectation of a weaker US dollar in the near-term. They see a potential entry-level at 0.7435 with a target at 0.7675 and stop-loss at 0.7225. 

Key Quotes:

“The USD has broken below key support levels over the past week triggering an accelerated sell-off. Historically, the USD has tended to underperform as well in December. The weaker than expected US employment report for November will increase pressure on both the Fed and Congress to loosen policy further heading into year end.”

“The improving outlook for global growth which has been led by the cyclical recovery China has helped to lift commodity prices and is set to continue. However, we do not believe that the improvement in Australia’s terms of trade is fully reflected in the value of the AUD yet. It leaves scope for further AUD upside ahead.”

“The next key resistance level for AUD/USD comes in at the 0.7500-level. A decisive break above would establish a new higher trading range between 0.7500 and 0.8000.”

Analysts at MUFG Bank, continue to see the USD/CHF pair with a bearish perspective with no much support until the 0.8500 area. They consider Biden?s v

Analysts at MUFG Bank, continue to see the USD/CHF pair with a bearish perspective with no much support until the 0.8500 area. They consider Biden’s victory supports the outlook for a weaker US dollar. 

Key Quotes:

“Over the past week the CHF has outperformed alongside the EUR as broad-based USD weakness has accelerated. USD/CHF has broken below key support at the 0.9000-level, and there now little in the way of support until 0.8500-level. It creates scope for further CHF gains in the near-term.”

“We continue believe that the election victory for Joe Biden supports our outlook for further USD weakness. We still expect the Fed to step up monetary easing to support the economic recovery following the weaker payrolls report. At the same time, it should increase pressure on Congress to reach a bipartisan deal on providing more fiscal stimulus.”

“We believe it is premature to see a sustainable reversal lower for currency debasement trades especially if inflation picks up while loose monetary policy remains in place. The CHF has been one of the main beneficiaries of the currency debasement trade alongside the price of gold.”

Gold peaked after the beginning of the American session at $1848/oz reaching the highest level since November 23 and then turned to the downside. It b
  • XAU/USD losses momentum near $1850 and falls hitting fresh daily lows.
  • The metal is about to end a three-day positive streak, after rising more than $80 from the weekly bottom.

Gold peaked after the beginning of the American session at $1848/oz reaching the highest level since November 23 and then turned to the downside. It bottomed at $1829 and is it about to end the week hovering around $1830.

It was a volatile week for gold. From the Monday low at $1763 rose more than $80. As of writing, it is up 4% for the week. The sharp rebound mitigated the bearish pressure.

The recovery in gold was capped by the strong $1845/50 area that is a critical resistance. A break higher should lead to further gains. So far, every approximation was followed by a limited correction lower. The positive momentum will likely continue to hold while price remains above $1800. A slide below would expose the next support at $1775 and the recent low of $1764.

Gold is about to end the week higher, after losing almost $200 over the previous three weeks. The move to the upside started with a technical correction and amid profit-taking. More recently, it was the dollar’s weakness that supported the move higher.

Technical levels

 

NZD/USD has been moving sideways in recent trade, with the price action swinging either side of the 0.7050 level. At present, the pair trades with los
  • NZD/USD has moved sideways since US jobs data and is consolidating around the 0.7050 mark.
  • The pair recently broke to the downside of a medium-term upwards trend channel, implying further choppy trade may lay ahead.

NZD/USD has been moving sideways in recent trade, with the price action swinging either side of the 0.7050 level. At present, the pair trades with losses of around 30 pips on the day, or 0.4%.

NZD props up the G10 performance table

No specific news or themes are weighing on NZD today. Rather, it seems that following a prolonged period of outperformance over the last month vs many of its other major G10 counterparts, NZD is finally undergoing some profit-taking, which has taken the wind out of its sails.

NZD lost some momentum during the Friday Asia session in tandem with AUD following soft Australian retail sales data. Meanwhile, US jobs data does not seem to have had a lasting reaction on the pair, which trades pretty much bang on its pre-data levels at just under 0.7050.

HSBC spot FX trader Brent Donnelly notes “that the high Sharpe of the (recent) rally and the prolonged, grinding nature of the move tends to mean all the short positions have been squeezed out by the time it breaks down”. That might mean the door is open for fresh shorts to pile in.

Moreover, Brent posits that more QE from the RBNZ might lay ahead; “NZD: You can make the argument that since the RBNZ is missing on the inflation mandate but getting lambasted for juicing the housing market, foreign bond buying might be a nice way for them to ease in early 2021 without further stoking homebuyer animal spirits”. Such a move by the bank does not seem to be priced into NZD right now.

NZD/USD breaks bullish trend channel to the downside

NZD/USD has recently broken to the downside of a bullish trend channel, implying that further downside may lay ahead. For reference, to the upside, this bullish trend channel links the 16, 18 and 24 November and 2 and 3 December highs and to the downside, the bullish trend channel links the 13, 19, 23 and 30 November and 2 and 3 December lows.

NZD/USD four hour chart

After spending the first half of the day fluctuating in a tight range near 1.2850, the USD/CAD came under renewed bearish pressure during the American
  • USD/CAD dropped to its lowest level in more than two years below 1.2800.
  • Unemployment Rate in Canada declined to 8.5% in November.
  • US Dollar Index turned flat on the day near 90.70 after NFP report.

After spending the first half of the day fluctuating in a tight range near 1.2850, the USD/CAD came under renewed bearish pressure during the American trading hours and slumped to its lowest level since October 2018 at 1.2790. As of writing, the pair was trading a couple of pips above that level, losing 0.5% on a daily basis.

CAD comes out on top after US and Canada jobs data

The upbeat jobs report from Canada provided a boost to the loonie on Friday. The monthly data published by Statistics Canada showed that the Unemployment Rate declined to 8.5% in November, compared to analysts' estimate of 8.9%. Additionally, the Net Change in Employment arrived at +62,000 and surpassed the market expectation of 20,000 by a wide margin.

On the other hand, the US Dollar Index (DXY) struggled to stage a convincing recovery after the US Bureau of Labor Statistics' labour market data. The DXY is currently unchanged on the day at 90.68 and remains on track to close the third straight week in the negative territory.

Nonfarm Payrolls in the US rose by only 245,000 and fell short of experts' forecast for an increase of 469,000. Despite this disappointing reading, the S&P 500 Index surged to a new record high on Friday to show risk flows remain in control of financial markets. 

Meanwhile, the barrel of West Texas Intermediate (WTI) is rising nearly 1% on Friday and allowing the commodity-related CAD to continue to outperform its rivals.

Technical levels to watch for

 

Spot silver (XAG/USD) trades flat on Friday, having largely remained magnetised to the $24.00 level and its 12 and 50-day moving averages (DMA) just a
  • Spot silver (XAG/USD) prices trade flat above $24.00 and were choppy in the aftermath of US NFP data.
  • XAG/USD is currently consolidating with an ascending triangle.

Spot silver (XAG/USD) trades flat on Friday, having largely remained magnetised to the $24.00 level and its 12 and 50-day moving averages (DMA) just above it.

Silver choppy post-NFP

Silver prices saw a two-way reaction to Friday’s official US jobs market data. As a recap; the report was softer than expected, with the US economy adding just 245K jobs (expected was gains of 469K) and though the unemployment rate dropped 0.2% to 6.9%, this was driven by a 0.2% drop in the participation rate to just 61.5%, still nearly 2% below pre-pandemic levels.

Immediately in wake of the data, XAG/USD spiked higher above $24.40 (fresh highs for the week), before immediately reversing back below $24.00. Since the choppy initial reaction, prices have consolidated above $24.00.

Waning US labour market momentum likely means that the Fed will deliver more stimulus (either via providing more in-depth guidance for their asset purchase programme or via tweaking its contents or even size), which ought to be a positive for precious metals (as it signals more money supply expansion for longer). However, it also implies a higher probability of Congress delivering US fiscal stimulus prior to the election, which is likely to be a negative for safe havens such as silver.

Silver prices consolidate within an ascending triangle

Over the past few days, silver prices have been consolidating within an ascending triangle; to the upside, the price action is being constrained by resistance around $23.30. Meanwhile, an uptrend linking the 2 and 3 December and Friday’s lows is acting as resistance. Should this ascending triangle break to the upside, the 20 November high at just above $24.50 would be the immediate area to watch and above that a long-term downtrend linking the 7 August, 1 September and 9 November highs, which will likely come into play just above $24.80.

Meanwhile, if the formation breaks to the downside, a test of the 2 December lows and the 24 and 25 November highs in the $23.50s will be worth watching.

The Canadian economy created 62K jobs in November, more than the 20K expected. According to analysts at the National Bank of Canada, the report showed

The Canadian economy created 62K jobs in November, more than the 20K expected. According to analysts at the National Bank of Canada, the report showed an impressive performance given public health restrictions put in place over the past few weeks and at the same time they warn that employment does not fully capture the current damages.

Key Quotes:

“The October report came in better than expected. It was an impressive performance given public health restrictions put in place over the past few weeks. Quebec and Ontario were able to generate decent gains in employment as layoffs in information, culture, recreation and accommodation/food services were more than compensated by gains elsewhere. That said, in the prairies, the rising number of COVID-19 cases has brought the recovery to an abrupt halt.”

“At the national level, we were pleased to see full-time jobs registering a 99K gain on the back of a 69K gain in October. Private sector employment continued to post gains despite current uncertainty, a necessary condition for a sustained recovery. As of November, employment is now just 3.0% below its February level with no less than 81% of jobs lost that have now been recovered.”

“Employment does not fully capture the current damages in the labour market. A significant portion of workers are underutilized as shown by hours worked still being down 5.0% compared to February’s peak. It is worth mentioning that a significant portion of employees are indirectly benefiting from the wage subsidy program offered by the federal government.·

The 6.7% unemployment rate announced by the US Bureau of Labor Statistics is misleading, Minneapolis Federal Reserve President Neel Kashkari said on F

The 6.7% unemployment rate announced by the US Bureau of Labor Statistics is misleading, Minneapolis Federal Reserve President Neel Kashkari said on Friday and argued that the true unemployment rate is around 10%, per Reuters.

Additional takeaways

"Very good news on vaccines, much better than thought likely 6 months ago."

"If we can get vaccines widely adopted, the second half of 2021 could see a strong economy."

"The path between here and the second half of 2021 is going to be rocky."

"The economy is going to be muted as virus flares; December, January and February will be tough for the economy."

"Doesn't seem like high inflation is around the corner."

"Modest inflation increase would be welcome."

"Fiscal help should focus on people out work, small businesses, state and local governments."

Market reaction

These comments were largely ignored by the market participants. As of writing, the US Dollar ?ndex was flat on the day at 90.71.

The official US employment report showed numbers below expectations for November. According to analysts at Wells Fargo, the strains of the latest COVI

The official US employment report showed numbers below expectations for November. According to analysts at Wells Fargo, the strains of the latest COVID-19 surge are starting to take a toll on the labor market. They point out the 245K new jobs added in November marks a sharp slowdown in hiring and leaves the economy with 9.8 million fewer jobs since February. 

Key Quotes: 

“Hiring slowed sharply in November, with employers adding 245K new jobs compared to 610K in October. Once again, the headline was held down by the layoffs of 93K temporary Census workers. But, the slowdown can be traced entirely to the private sector, where jobs increased 344K after having risen 877K last month.”

“The survey week spanned Nov. 8-14, before many of the latest COVID restrictions and more voluntary efforts to stay at home. A further moderation in hiring is therefore likely in December, with real potential for payrolls to decline outright next month.”

“On the surface, one spot of good news in today’s report was the 0.3% rise in average hourly earnings. However, the pickup was flattered by the weak jobs numbers in retail and leisure & hospitality—the lowest paying sectors. The substantial slack in the jobs market, illustrated more entirely by the employment-population ratio, suggests underlying wage growth will remain restrained for some time.”

“Even with the best seven-month run of job gains on record, employment losses are steeper than at the depth of the Great Recession. That said, there is still reason to believe that the labor market will snap back more quickly this cycle.”
 

The EUR/GBP retreated further and bottomed at 0.8982, hitting a fresh three-day low. It then rebounded rising to 0.9010. Brexit speculation continues
  • EUR/GBP about to end the week with gains, far from the peak.
  • Pound recovers strength as EU and UK continue with negotiations.

The EUR/GBP retreated further and bottomed at 0.8982, hitting a fresh three-day low. It then rebounded rising to 0.9010. Brexit speculation continues to boost volatility in pound’s crosses.

A definition regarding Brexit is expected over the next days so the pound is exposed to rumors and speculations. The euro is showing weakens with the EUR/USD retreating from multi-year highs into negative territory for the day.

From a technical perspective, EUR/GBP broke days ago a downtrend line around 0.9000, but the move showed some difficulties. A firm decline back under 0.9000 would point to lack of definition ahead. The key medium-term support stands at 0.8860.

A decisive week ahead

Next week, a resolution regarding Brexit should be more clear. On Thursday, European leaders will meet to define Brexit and the Recovery Fund. High-risk events.

Also, on Thursday, the European Central Bank will have its meeting. It is a particular meeting as market participants expect action. Analysts at TD Securities look for the ECB to keep its policy rate on hold, but deliver further easing via the PEPP and TLTROs. “For the PEPP, we're in line with consensus in expecting a €500bn boost and 6-month extension to end-2021. And for the TLTROs, we look for a 25bps reduction in the interest rate, plus a one-year extension through to June-2022.”

Technical levels

 

 

Russia Consumer Price Index (MoM) above expectations (0.6%) in November: Actual (0.7%)
The most important stimulus for the US economy in the coming months will be fiscal, Chicago Federal Reserve Bank President Charles Evans said on Frida

The most important stimulus for the US economy in the coming months will be fiscal,  Chicago Federal Reserve Bank President Charles Evans said on Friday, per Reuters.

Additional takeaways

"I was a latecomer to optimism on vaccine rollout, can imagine upside risk for the economy."

"Comfortable with the current asset purchase program; would be for the next several months."

"Not opposed to more accommodation, just not sure of right timing."

"A much bigger balance sheet may be required to get inflation up over 2%."

"A steeper yield curve, if it's a reflection of improved economic outlook or conditions, is not a concern."

"I do not expect to raise rates until 2023, probably 2024."

Market reaction

The US Dollar Index staged a rebound in the last minutes and turned flat on the day at 90.72.

AUD/USD has risen from lows around 0.7410 to the 0.7430s in recent trade following a worse than expected US labour market report for November. Current
  • AUD/USD has seen minor upside in wake of a soft US labour market report, but still trades in the red around 0.7430.
  • Soft Australian retail sales number and ongoing Australia/China relations concerns could be weighing.

AUD/USD has risen from lows around 0.7410 to the 0.7430s in recent trade following a worse than expected US labour market report for November. Currently, the pair trades flat on the day.

AUD benefits as soft US data triggers minor risk on reaction

Bad data is good data again it seems. The November US labour market report was softer than expected, with the US economy adding just 245K jobs (expected was gains of 469K) and though the unemployment rate dropped 0.2% to 6.9%, this was driven by a 0.2% drop in the participation rate to just 61.5%, still nearly 2% below pre-pandemic levels.

US equity markets seem to have taken this as good news (S&P 500 and Dow both hit all-time highs), given that soft data is likely to 1) put pressure on the US Congress to deliver fresh stimulus prior to the Biden administration taking office in January and 2) put pressure on the Fed to deliver more stimulus later in the month via tweaks to the guidance, composition or even size of its QE programme. Indeed, US equities have advanced to fresh all-time highs.

However, the USD reaction has been more nuanced. The Dollar Index still trades marginally in the red on the day, but losses were again capped above 90.50 and DXY now trades flat compared to when the data came out.

AUD gains in the aftermath of the data have now mostly been given back. Gains vs USD are being hogged by the likes of CAD, which a boost from its own November labour market report which exceeded expectations by some margin, and GBP, which is higher amid hopes for a Brexit deal by the end of the week.

On the day, AUD/USD still trades marginally in the red; final Australian Retail Sales numbers for October, released during Friday’s Asia session, underwhelmed and could be weighing on the Aussie. Retail sales rose at a slightly softer than expected rate of 1.4% MoM, lower than the preliminary estimate for October retail sales of 1.6%.

However, more broadly, the greatest concern on the minds of AUD bulls right now has been the deterioration in diplomatic and trade relations between Australia and its most important trade partner China over the last few week. Any signs of normalisation of ties is likely to be greeted jubilantly by AUD traders.

AUD/USD finds resistance at previous yearly high

AUD/USD has survived a retest of the previous yearly high (set back in early September) at 0.7114. The level appears to have offer strong support, with bulls keen to buy the dip. As long as USD continues to weaken and risk appetite remains buoyant, Thursday’s year-to-date highs at 0.7450 look likely for the taking. Beyond these highs, the next key area od resistance is the psychological 0.7500 level, which coincides with the December 2017 low. Conversely, if the bears regains control and push the pair back below the September high and the 0.7400 level, a move back towards a key area of resistance around 0.7340 is likely.

AUD/USD four hour chart

"The US economic landscape is still very strong," White House economic adviser Larry Kudlow told Fox Business on Friday, per Reuters. Additional takea

"The US economic landscape is still very strong," White House economic adviser Larry Kudlow told Fox Business on Friday, per Reuters.

Additional takeaways

"US economy is still in a V-shaped recovery."

"Coronavirus pandemic could slow the US economy next year."

"Do not think spikes in coronavirus cases over the holidays will require a shutdown."

"US President Donald Trump favors a targeted coronavirus relief package."

"Coronavirus aid talks have a somewhat more optimistic tone."

"Tthe jobs numbers are doing very well, November's data represents just one month."

Market reaction

Risk flows continue to dominate financial markets on Friday. As of writing, the S&P 500 Index was trading at fresh all-time highs near 3,690, gaining 0.6% on a daily basis.

New orders for manufactured goods, Factory Orders, in the US rose by $4.9 billion, or 1%, to $480.8 billion in October, the data published by the US C
  • Factory Orders in the US rose more than expected in October.
  • US Dollar Index stays in the negative territory around 90.60.

New orders for manufactured goods, Factory Orders, in the US rose by $4.9 billion, or 1%, to $480.8 billion in October, the data published by the US Census Bureau showed on Friday. This reading followed September's increase of 1.3% (revised from 1.1%) and came in slightly better than analysts' estimate of 0.8%.

"New orders for manufactured durable goods in October, up six consecutive months, increased $3.2 billion, or 1.3%, to $241.0 billion, unchanged from the previously published increase," the publication further read.

Market reaction 

The US Dollar Index paid little to no attention to this report and was last seen losing 0.16% on the day at 90.57.

United States Factory Orders (MoM) above expectations (0.8%) in October: Actual (1%)
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