China's trade surplus narrowed to $38.73 billion in November from $42.81 billion in October, data published by China's General Administration of Customs revealed on Sunday.
Further details of the publication showed that exports in November declined by 1.1% on a yearly basis to miss the market expectation for an increase of 1% and imports rose by 0.3% following October's 6.4% decline.
One week to go until the United States hikes tariffs on Chinese imports, investors will remain focused on the US-China trade dispute. Earlier last week, US President Trump noted that a deal with China might have to wait until after the 2020 election but on Thursday reiterated trade talks were "moving right along" to confuse markets.
Here is what you need to know Monday, December 9th:
- An upbeat US employment report and a better-than-anticipated Michigan Consumer Confidence Survey boosted the USD on Friday, although its gains were moderated and uneven across the FX board. US data released earlier in the week triggered concerns about the country’s economic health, keeping the dollar’s gains at check.
- The US is scheduled to apply more tariffs on China next December 15, and the market fears that, if phase one of a trade deal is not signed this week, the trade war will escalate further, affecting the global economy.
- The EUR/USD pair held between the 1.10/1.11 range, still struggling for direction. The upside remains capped by dismal EU data signaling steepening economic slowdown entering Q4.
- The GBP/USD pair held on to gains, trading at multi-month highs amid hopes UK PM Johnson will win the upcoming election and be able to pass his Brexit deal through the Parliament. The latest polls released during the weekend showed that Conservatives’ lead remains stable at 10 points. Elections this Thursday will likely unwind large move in GBP crosses.
- Wall Street rallied on Friday, trimming all of its weekly losses. US Treasury yields bounced and posted modest weekly gains, underpinned by a robust US employment report.
- Gold collapsed on renewed dollar demand, but the Japanese yen remained strong and settled against its American rival near its weekly high, somehow reflecting market’s caution.
- Crude oil prices hit fresh multi-month highs after the OPEC+ decided to deepen cut by 500K b/d for a total adjustment of 1.7 million b/d. Also, the Baker Hughes report showed that US active drilling rigs declined to 663 from 668 last week.
- Cryptocurrencies held within familiar levels throughout the weekend, with the market’s action subdued. BTC/USD stable around $7,500.
- EUR/USD neutral/bullish bias remains in place despite the dip caused by the NFP.
- The level to beat for buyers is the 1.1063 resistance.
EUR/USD weekly chart
EUR/USD daily chart
EUR/USD four-hour chart.
Additional key levels
- DXY is boosted by stellar November’s Nonfarm Payrolls (NFP) readings.
- DXY is set to remain under bearish pressure below the 98.00/98.20 price zone.
DXY daily chart
DXY four-hour chart
DXY 30-minute chart
Additional key levels
Next week, the economic calendar showed the European Central Bank (ECB) will have its meeting, the first with Christine Lagarde as president. Analysts at Danske Bank do not expect changes from the ECB. They add, German politics, and the survival of the Grand Coalition, is still in flux, and investors should not get too excited about a big German fiscal policy boost in the near term.
“In the euro area, we have a very interesting week ahead of us with President Lagarde’s first ECB meeting. We do not expect any new policy messages, but think the ECB will formally launch its long awaited strategy review, although we do not expect a specific deadline. Our base case is for a significant overhaul which includes revisiting the ‘below, but close to 2%’ wording. However, it is still too early to judge the market implications. We expect the staff projections to be unchanged in the grand scheme of things, with minor revisions.”
“After the surprising win of Norbert Walter-Borjans and Saskia Esken as new SPD leaders, this weekend’s SPD party convention will be a watershed event for German politics. The new leaders have been staunch critics of the current governing coalition. Latest comments suggest SPD delegates will stop short of calling for an outright ‘Groko’ exit at the convention, instead seeking to engage in negotiations with the CDU on key demands. We think it is not a foregone conclusion that Germany is heading for new elections in Q1 20.”
“On Tuesday, we get the ZEW print for December. We look out for whether November’s rise in the expectation component continues, since the spread between ‘expectations’ and ‘current conditions’ has usually been a good predictor of upcoming rises in PMI manufacturing.”
“Thursday will also bring October’s industrial production figures for the euro area. We look out for whether the latest rebound in manufacturing PMIs is also visible in actual production figures.”
Matthieu Arseneau, analyst at the National Bank of Canada points out that the Canadian employment report released today showed the worst employment pullback since the recession in November.
“Canada’s employment plunged in November (-71K) according to the Labour Force Survey, way below consensus expectations calling for a 10K rise. As a result, the jobless rose four ticks to 5.9% (the highest in 15 months) with the participation rate dropping one tick to 65.6%.”
“The LFS employment report was way below consensus expectations in November registering its worst monthly print since the 2008-2009 recession. Our own expectations were quite low as November was one of the coldest on record and some election employees saw their contracts coming to an end. That said, the magnitude of the decline caused by a deterioration in the private sector is surprising, especially since it occurs at a time where global uncertainties had somewhat faded. We would have been more worried if such a drop had not followed such an outstanding run earlier this year.”
“Despite this drop, 285K jobs have been created this year, the second best performance in the 10 year expansion with no less than 86% of those jobs being fulltime.”
Analysts at ING argue the USD/JPY looks bearish going into next week considering the many key events ahead, and see it trading in 107.00-109.80 range.
“After a week of gains, the JPY momentum collapsed on today’s strong US payrolls, with USD/JPY now pushing up to 109. Next week, a calendar packed with market-moving events worldwide will likely overshadow the impact of the numerous data releases in Japan (PMIs, machine orders, PPI). The US-China trade negotiations will inevitably be the key driver throughout the week: the yen will likely find support on any indication that the deal will be delayed.”
“With the regards to the UK parliamentary vote effect, we see the spillover into other currencies including yen as asymmetric, with the yen benefiting more from a non-market-friendly outcome vs the expected Conservative party victory. On the latter, the subsequent risk-on spillover should not be significant to cause material USD/JPY upside. Conversely, a hung parliament result would likely trigger a more meaninful yen appreciation. Elsewhere, the Fed is also unlikely to support JPY as it will probably hold a neutral tone whilst hitting the pause button in the easing cycle.”
“Considering that USD/JPY is the highest correlated G10 pair with risk sentiment (correlation at -0.57 with the MSCI World, in the last 3 months), expect the pair to come out as one of the biggest movers in the market.”
Analysts at MUFG Bank, presented a trade idea for next week of shorting the EUR/USD pair at 1.1060, with a target at 1.0950 and stop-loss at 1.1120. They warn is a low conviction trade though given the time of year when fundamentals might matter less.
“We are moving toward year-end and hence getting into the period of trading when fundamentals often become less influential giving way to seasonal positioning flows into year-end. But it is hard to see euro performing well after the sharp drop in IP in Germany along with weaker than expected factory orders yesterday. Contrast that with the strong US employment report and we know Christine Lagarde’s press conference will be trickier than Jerome Powell’s. Technically, EUR/USD reversed lower after testing the trend-line resistance from the highs in June and November.”
“Furthermore, there is a risk factor next week that is difficult to predict – the outcome of the US-China trade negotiations. We expect the 15th December tariffs to be postponed but if markets start to fret on that, risk aversion could escalate and EUR funded positions could be liquidated, providing EUR will support.”
- Pound gains momentums late on Friday, consolidates weekly gains.
- Cable ends week sharply higher, post highest weekly close since April.
The GBP/USD pair rebounded late on Friday, trimming daily losses and consolidated a weekly gain of more than two hundred pips, ahead of critical days in the United Kingdom.
Volatility set to continue
The US dollar rose against majors on Friday after the release of the US official employment report. GBP/USD bottomed at 1.3099 and then bounced to the upside, ending the session hovering around 1.3135. The move off lows took on the back of a stronger pound across the board.
The pair is about to post the highest weekly close since April supported by polls ahead of the general election in the United Kingdom. “What is priced in? A small Conservative majority is probably cooked into cable – yet fewer than 68 seats projected by YouGov's Multilevel Regression Post-stratification (MRP) poll – the broadest statistical exercise leading to the vote”, explained Yohay Elam, analyst at FXStreet. According to him, a hung parliament will likely trigger a sterling sell-off while a broad majority may propel it higher.
Elections in the UK will take place next Thursday, the day after the FOMC meeting. It looks like a busy week ahead with critical events that could likely keep volatility in GBP/USD elevated, also helped by technical factors. The pair broke on Tuesday a six-week trading range, rising finally above the 1.3000 area.
- EUR/JPY dived on Friday, breaking below the 120.56 support level.
- The level to beat for sellers is the 119.95 support.
EUR/JPY daily chart
EUR/JPY four-hour chart
EUR/JPY 30-minute chart
Additional key levels
Crude oil prices rose following the OPEC+ meeting. According to analysts at Rabobank, the deeper cuts should also a tailwind for oil prices going into 2020 especially.
“The much awaited OPEC+ meeting has come and gone without much hoopla. The outcome of the overly-hyped event was mostly in-line with our base case forecast of stricter adherence to the current supply agreement and the Saudis agreeing to keep their production at 9.7mb/d. There was a great deal of speculation in the lead up to the meeting with some even suggesting that the Saudis were ready to reverse course and increase production given that other OPEC members were not satisfying their end of the deal.”
“We are encouraged by the recent price action despite the fundamental data coming in on the weaker side of expectations. We fully expect commercial crude inventories in the US will hit multi-year lows in the near future – a milestone already accomplished when looking at total US crude stocks inclusive of the SPR. The recent announcement of deeper cuts by the OPEC+ members should also provide a tailwind for oil prices going into 2020 especially if the USChina come to an agreement on phase one of the larger trade deal being discussed.”
Analysts at ING see the EUR/USD pair with a neutral bias for next week and expect it to trade between 1.0980 and 1.1100. Their one-month target is 1.1000.
“Despite a fairly busy week on the US and EZ data fronts, the impact on EUR/USD should be limited, with the cross remaining range bound. In the US, the FOMC meeting (Wed) is unlikely to deliver a major surprise, with the central bank on hold after delivering three cuts so far this year. Chair Powell should re-emphasise the data-dependent approach of the committee. With Nov US CPI inflation to print 2%YoY (Wed) and Nov retail sales (Fri) rising, the case for no urgent rate cuts should remain in place. Also, today’s labour market data further supported the notion of stability in interest rates for now.”
“In the EZ, new ECB President Lagarde is hosting her first press conference. No material change is expected with QE just being reintroduced this quarter. New ECB staff projections will be published with both CPI and growth projections for 2020 lowered (and 2022 projections newly revealed). We also don’t expect any clarity about Lagarde’s preference on the ECB strategic review. We expect a modest improvement in the Dec German ZEW Index.”
“A possible Conservative party victory in the UK election and the associated sterling strength may push EUR/USD modestly higher via the GBP/USD flow channel.”
The November employment report surpised to the upside with the economy adding 266K jobs. According to analysts at Wells Fargo, the trend in hiring has turned decidedly higher since the summer, but they do not expect the recent pace to last.
“The trend in hiring has rebounded significantly since the middle of the year.”
“Part of the impressive headline gain came from the end of the GM strike.”
“The service sector continues to show few signs of spillovers from weakness in the goods sector.”
“The labor market remains tight. The unemployment rate ticked back down to match its 50-year low of 3.5% despite a slowing in the household survey measure of employment. Average hourly earnings came in 0.1 percentage point weaker than expected, but October’s increase was revised higher. Average hourly earnings are now up 3.1% year-over-year, and along with the renewed strength in hiring, suggests income growth from wages & salaries should remain close to 5%.”
“The 200K pace of private payroll growth the past three months is unlikely to be maintained, especially as companies continue to cite a high degree of difficulty finding workers. The Fed has signaled it will be on hold for at least its upcoming meeting after its 75 bps of insurance cuts since this summer. With the labor market more than holding up, we see no reason for that to change now.”
- AUD/USD remains in range despite broad-based USD strength.
- The level to beat for bears is the 0.6821/14 support zone.
AUD/USD daily chart
AUD/USD four-hour chart
AUD/USD 30-minute chart
Additional key levels
- Gold is down sharply this Friday as the US added more jobs than anticipated in November.
- Support is seen in the 1455/50 price zone.
Gold daily chart
Gold four-hour chart
Additional key levels
- Crude oil hits fresh monthly highs but then trimmed gains after the OPEC+ meeting.
- OPEC+ decided to deepen cut by 500K b/d, for a total adjustment of 1.7 million b/d.
WTI futures jumped toward $59.090 after the Organization of the Petroleum Exporting Countries and its allies's meeting ended. Crude reached the highest level in two months an then pulled back. As of writing, trades at $58.70 up 0.55% for the day.
OPEC cut, oil rises
At the press conference, following the meeting, Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman announced oil producers agreed to extend production cuts by an additional 500K barrels per day (b/d) through to March of next year when the next meeting will take place.
The agreement is larger than what it was initially expected (400K b/d). Over the last few days, crude oil rose constantly on the back of speculations about a larger cut. WTI is trading above November highs and a consolidation could point to further gains over the next days, including a test of $60.00.
The outcomes of the meeting triggered only a modest rally but helped WTI held to weekly gains. The total cut in output will total 1.7 million b/d. Abdulaziz bin Salman explained Saudi Arabia will continue with its additional voluntary contribution leading the adjustment to 2.1 million barrels. Regarding the Saudi Aramco IPO, the Minister said he is convinced the company will be worth more than two trillion dollars in a few months.
- USD/JPY gets a boost from the stellar Nonfarm Payrolls (NFP).
- The level to beat for bulls is the 109.03 resistance.
USD/JPY daily chart
USD/JPY four-hour chart
USD/JPY 30-minute chart
Additional key levels
Stephen Poloz, Governor of the Bank of Canada, will be stepping down next year. He will not seek a second term after his term expires on June 2, 2020. Poloz has been serving a seven-year term since 2013. The Ottawa-based institution has begun searching for a replacement.
Carolyn Wilkins, the Deputy Governor, is one of the candidates to lead the bank. Other candidates may come from within or from outside the BOC.
USD/CAD is trading around 1.3250, consolidating its gains after Canada's poor jobs report. The nation lost over 70,000 positions in November, worse than expected.
Earlier this week, Poloz presided over the BOC's decision to leave rates unchanged, where the bank expressed optimism over the economy.
- USD/RUB struggles for direction on Friday.
- Russia CPI came in below expectations in November.
- OPEC+ meeting expected to announce extra cuts.
The Russian ruble has now managed to regain some buying interest after a negative start of the session and is now prompting USD/RUB to retreat to the 63.70 region.
USD/RUB looks to data, CBR
The pair came under downside pressure after Monday’s rejection from the key 200-day SMA in the mid-64.00s. The leg lower has gained extra pace after spot broke below the 64.04/63.96 band earlier in the week, where coincides the 10-day, 55-day and 21-day SMAs.
RUB has quickly depreciated to the vicinity of the 64.00 mark vs. the buck soon after inflation figures in the Russian economy gauged by the CPI showed consumer prices rose less than expected during November at a monthly 0.3% and 3.5% over the last twelve months. The move up in the pair was, however, ephemeral.
In the meantime, the ruble stays firm on the broad-based view that the CBR will leave rates on hold at next week’s meeting following several rate cuts in the second half of the year. Supporting this view, central bank’s officials have recently ruled out revising the neutral rate – which is set between 6%-7% - while domestic data as of late was in line with the bank’s projection, opening the door to a less dovish stance in the periods to come.
In the US docket, the greenback reversed part of the weekly decline after Non-farm Payrolls came in at 266K for the month of November, largely beating previous estimates.
USD/RUB levels to watch
At the moment the pair is gaining 0.05% at 63.74 and faces the next up barrier at 64.01 (55-day SMA) followed by 64.43 (200-day SMA) and then 64.49 (monthly high Dec.2). On the downside, a drop below 63.66 (monthly low Dec.6) would open the door to 63.61 (low Nov.22) and finally 63.17 (monthly low Nov.4).
- The Nonfarm Payrolls surprised to the upside with 266k vs. 180k forecast.
- The cable is correcting down and challenging the 1.3122 level.
GBP/USD daily chart
GBP/USD four-hour chart
GBP/USD 30-minute chart
Additional key levels