- EUR/JPY reverses two daily drops in a row and approaches 143.00.
- A deeper pullback could still test the key 200-day SMA at 139.15.
EUR/JPY rebounds from Friday’s 3-month lows and manages to flirt with the round level at 143.00 at the beginning of the week.
Despite the ongoing rebound, the cross remains under pressure and could still shed further ground and revisit the critical 200-day SMA in the short-term horizon.
The outlook for EUR/JPY is expected to remain positive while above the latter.
EUR/JPY daily chart
USD/MYR remains under pressure and poised to drop further in the near term, suggests Markets Strategist at UOB Group Quek Ser Leang.
“USD/MYR closed sharply lower for the fourth week in a row last Friday (4.3830, -2.06%). While further weakness is not ruled out, deeply oversold conditions suggest any decline is likely to be at a slower pace and a clear break of 4.3240 is unlikely.”
“Resistance is at 4.4180; a breach of 4.4450 would indicate the current weakness has stabilized.”
The US Dollar weakened further and more substantially in November. After a period of swings back and forth between renewed USD strength and weakness, only later in 2023, we will see a sustained turn weaker for the Dollar, according to economists at MUFG Bank.
A period of some rebound for the Dollar seems likely
?We do not yet see grounds for a sustained weakening of the USD and expect the coming three-to-four months to be a period of swings back and forth as the fundamental driver of Dollar strength becomes less compelling but equally broader financial conditions remain challenging for a sustained retracement of Dollar strength.?
?QT is ongoing, global dollar liquidity is shrinking and equity valuations remain stretched, all USD supportive factors.?
?A peak for the US Dollar may have passed but we would expect swings back and forth between renewed dollar strength and weakness and only later in 2023 will we see a sustained turn weaker for the Dollar.?
OPEC and its allied producers (OPEC+) have agreed to maintain their current oil-output targets despite a recent decline in energy prices. Oil prices showed no immediate reaction, which bode ill for the Norwegian Krone, economists at Commerzbank report.
OPEC+’s long-term price setting scope seems limited
“In the run-up to the OPEC+ meeting there had been speculation that the oil cartel might decide in favour of raising oil production volumes. That did not happen, as we found out over the weekend. However, that is not good news for the Norwegian Krone as the price for Brent Oil reacted only very cautiously to these reports.”
“Long-term inflation expectations remain well below the peaks of the first half of the year, OPEC+’s long-term price setting scope also seems limited – at least if one assumes that the cartel will continue to play the role of a monopolist it used to play.”
“And if there is no significant reaction in the oil price then there is no reason to trade NOK at stronger levels either.”
European Central Bank (ECB) Governing Council member Gabriel Makhlouf said on Monday, ?I do not think we're in restrictive monetary policy rate territory now.?
?Anticipates that 50 basis point rise is where we?ll end up.?
?We haven?t reached the stage that we?re confident we have inflation under control.?
?Anticipates that there will be further interest rate increases in the new year.?
?Do not see quantitative tightening starting in January, expects to see some changes implemented by end-Q1.?
?Fiscal policy potentially becoming marginally unhelpful in the euro zone to bringing inflation under control.?
EUR/USD is drawing support from the latest hawkish remarks from the ECB policymaker. The pair was last seen trading up 0.16% on the day at 1.0555.
- Eurozone Retail Sales came in at -1.8% MoM in October vs. -1.7% expected.
- Retail Sales in the bloc arrived at -2.7% YoY in October vs. -2.6% expected.
Eurozone?s Retail Sales dropped by 1.8% MoM in October versus -1.7% expected and 0.8% last, the official figures released by Eurostat showed on Monday.
On an annualized basis, the bloc?s Retail Sales came in at -2.7% in October versus 0% recorded in September and -2.6% consensus forecast.
The euro shrugs off the downbeat Eurozone data amid a renewed weakness in the US Dollar across the board. At the time of writing, the major is trading at 1.0556, up 0.16% on the day.
About Eurozone Retail Sales
The Retail Sales released by Eurostat are a measure of changes in sales of the Eurozone retail sector. It shows the performance of the retail sector in the short term. Percent changes reflect the rate of changes of such sales. The changes are widely followed as an indicator of consumer spending. Usually, positive economic growth anticipates "Bullish" for the EUR, while a low reading is seen as negative, or bearish, for the EUR.
EUR/USD has now rebounded by nine big figures since reaching a trough on 28th September. Economists at MUFG Bank analyze the EUR/USD seasonal outlook in December and note that the pair has gained on 14 occasions over a twenty-year period.
Watch the seasonal EUR bias in December
?There is a strong seasonal bias to be mindful of in December. In the last ten years, EUR/USD has gained on eight occasions in December, by an impressive average of 1.5%.?
?Over a twenty-year period, EUR/USD has gained on 14 occasions. This could be a reflection of position squaring ahead of year-end. On average over these periods, market participants have run EUR short positions. That influence could be powerful this year given the scale of long Dollar positioning given the huge move in 2022. That said, the EUR/USD gains in October and November may mean this has already started.?
- AUD/USD kicks off the new week on a positive note and hits a fresh multi-month high.
- A combination of factors helps revive the USD demand and caps the upside for the pair.
- Traders look to the US ISM Services PMI for some impetus ahead of the RBA on Tuesday.
The AUD/USD pair climbs to its highest level since August 13 on the first day of a new week, albeit struggles to capitalize on the move beyond mid-0.6800s. The pair trims a part of its intraday gains and retreats to the 0.6800 mark during the first half of the European session.
A combination of factors assists the US Dollar to stage a modest recovery from over a five-month low touched earlier this Monday, which, in turn, acts as a headwind for the AUD/USD pair. Worries about a deeper global economic downturn overshadow the latest optimism over the easing of COVID-19 curbs in China. This is evident from a generally softer tone around the equity markets, which drives some haven flows towards the buck and weighs on the risk-sensitive Aussie. Apart from this, an intraday uptick in the US Treasury bond yields offers some support to the greenback.
The upbeat US monthly jobs report (NFP) released on Friday and an upside surprise in wages point to a further rise in inflationary pressures. The data validates Fed Chair Jerome Powell's forecast that the peak interest rate will be higher than expected and suggests that the US central bank will continue to tighten its monetary policy. This, in turn, is seen pushing the US Treasury bond yields higher. That said, the recent comments by several FOMC Officials support prospects for relatively smaller interest rate hikes by the US central bank, which might cap gains for the USD.
Traders might also refrain from positioning for a deeper corrective pullback for the AUD/USD pair as the focus now shifts to the Reserve Bank of Australia (RBA) meeting on Tuesday. Heading into the key central bank event risk, the US ISM Services PMI might provide some impetus to the AUD/USD pair, later during the early North American session on Monday. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and further contribute to producing short-term trading opportunities around the AUD/USD pair.
Technical levels to watch
Markets Strategist at UOB Group Quek Ser Leang noted USD/THB could lose further traction and deflates to the 34.00 region.
“USD/THB closed sharply lower by 2.88% last week (Friday’s close of 34.70) before extending its loss in Asian trade today. The rapid improvement in downward momentum is likely to lead to further USD/THB weakness this week.”
“The level to watch is at 34.30, followed by 34.05. On the upside, a breach of 35.05 (minor resistance is at 34.85) would indicate that USD/THB is unlikely to weaken further.”
- EUR/USD advances to new multi-month highs past 1.0580.
- The EMU Sentix Index surprises to the upside in December.
- Markets? attention will be on the US ISM Non-Manufacturing.
The optimism around the European currency remains well and sound and lifts EUR/USD to new 6-month peaks in the 1.0580/85 band on Monday.
EUR/USD up on USD-weakness
EUR/USD advances for the fourth consecutive session and extends further the recent breakout of the key 200-day SMA (1.0362), approaching at the same time the 1.0600 neighbourhood.
The continuation of the uptrend in the pair once again comes in tandem with extra decline in the Greenback, which morphed into fresh multi-month lows in the USD Index (DXY).
In the German money markets, the 10-year Bund yield look flatish around 1.85% in a context where a 50 bps rate raise by the ECB at the December 15 gathering appears to be shaping up.
Data wise in the broader Euroland, the Investor Confidence tracked by the Sentix Index ticked higher to -21.0 for the current month, while November?s final Services PMI dropped marginally to 48.5. In Germany, the final Services PMI receded to 46.1 during last month.
In the NA session, the ISM Non-Manufacturing will take centre stage seconded by Factory Orders and the final Services PMI.
What to look for around EUR
EUR/USD pushes higher and trades at shouting distance from the key 1.0600 region at the beginning of a new trading week.
In the meantime, the European currency is expected to closely follow US Dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB policy divergence. In addition, markets repricing of a potential pivot in the Fed?s policy remains the exclusive driver of the pair?s price action for the time being.
Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the Euro over the short-term horizon.
Key events in the euro area this week: Eurogroup Meeting, ECB Lagarde, Germany Final Services PMI, EMU Retail Sales, Final Services PMI (Monday) - Germany Construction PMI (Tuesday) ? EMU Flash Q3 GDP Growth Rate (Wednesday) ? ECB Lagarde (Thursday).
Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region?s growth prospects and inflation outlook. Risks of inflation becoming entrenched.
EUR/USD levels to watch
So far, the pair is gaining 0.11% at 1.0551 and is expected to meet the next up barrier at 1.0584 (monthly high December 5) ahead of 1.0614 (weekly high June 27) and finally 1.0773 (monthly high June 27). On the other hand, the breach of 1.0362 (200-day SMA) would target 1.0330 (weekly low November 28) en route to 1.0222 (weekly low November 21).
The Eurozone Sentix Investor Confidence index improved to -21.0 in December from -30.9 in November vs. -27.1 expected.
The current situation in the Eurozone rose to -20.0 points in December from -29.5 in November.
An expectations index jumped to -22.0 from -32.3, hitting its highest value since March 2022.
"The surprisingly high gas levels and the continued stable labor markets are not consistent with a recession.?
"In our opinion, however, this correction in assessments should not be misinterpreted as a general trend reversal.?
"The dangers of recession have by no means been averted."
The shared currency picked up fresh bids on the upbeat Eurozone Sentix data. EUR/USD is trading at 1.0560, up 0.20% on the day.
US Dollar is dropping again today despite a strong labour market report. Economists at Commerzbank do not expect the greenback to recover.
What could save the Dollar at this stage?
“I could make it easy for myself and simply say: ‘If not even a labor market as strong as this one can provide sustainable support to the US dollar it clearly is beyond saving’.”
“One could of course assume now that the Fed would not have reason to lower interest rates again. However, this assumption would only be correct if the US financial market were to remain solid. Following years of cheap money, followed by a rate hike cycle of unparalleled speed some market participants might question that too.”
“Even in the absence of rising unemployment, there might be reasons for the Fed to lower its key rate once inflation pressure eases.”
- Gold price corrects from a five-month high amid modest intraday US Dollar recovery move.
- Rebounding US Treasury bond yields revives the USD demand and weighs on the XAU/USD.
- Bets for less aggressive rate hikes by Federal Reserve should help limit losses for Gold price.
Gold price struggles to capitalize on the intraday positive move and retreats from the $1,810 area, or a five-month peak touched earlier this Monday. The XAU/USD slips below the $1,800 mark during the first half of the European session and is now flirting with a technically significant 200-day Simple Moving Average (SMA).
Modest US Dollar recovery exerts pressure on Gold price
The US Dollar reverses an early dip and stages a modest recovery from its lowest level since late June, which, in turn, is seen acting as a headwind for the Dollar-denominated Gold price. The upbeat monthly jobs report released from the United States on Friday and an upside surprise in wage growth pointed to the possibility of a further rise in inflationary pressures. This fuels speculation that the Federal Reserve will continue to tighten its monetary policy and offers some support to the Greenback.
Rebounding US Treasury bond yields further weighs on XAU/USD
Furthermore, Federal Reserve Chair Jerome Powell last week indicated that the peak interest rate will be higher than expected. This leads to an intraday uptick in the US Treasury bond yields, which is seen as another factor benefitting the US Dollar and driving flows away from the non-yielding Gold price. Apart from this, the latest optimism over the easing of COVID-19 restrictions in several Chinese cities dents demand for traditional safe-haven assets and further seems to weigh on the XAU/USD.
Bets for smaller rate hikes by Federal Reserve to limit losses
The downside, however, is likely to remain cushioned, at least for the time being, amid rising bets for a relatively smaller 50 bps rate hike by the Federal Reserve at its upcoming meeting on December 13-14. This should continue to lend some support to Gold price, warranting some caution positioning for any meaningful corrective pullback. Traders now look forward to the US ISM Services PMI, due for release later during the early North American session, for short-term opportunities.
Gold price technical outlook
From a technical perspective, last week’s sustained move beyond the very important 200-day SMA was seen as a fresh trigger for bullish traders. Hence, any subsequent decline is more likely to attract some buyers near the $1,783-$1,782 region. This, in turn, should help limit the downside for Gold price near the $1,761-$1,760 horizontal resistance breakpoint, now turned support.
On the flip side, bulls might now wait for some follow-through buying beyond the $1,810 area before placing fresh bets. Gold price might then accelerate the positive momentum towards testing the next relevant hurdle near the $1,830 zone en route to the $1,843-$1,845 supply zone.
Key levels to watch
?I see a 50 basis point increase in interest rates as the minimum needed at our December meeting,? European Central Bank (ECB) Governing Council member Gabriel Makhlouf said on Monday.
We have to be open to policy rates moving into restrictive territory for a period in 2023.
It is premature to be talking about the end-point for policy rates amid the prevailing levels of uncertainty.
There are complex issues involved in quantative tightening.
It would be wrong to ascribe our current inflation problem solely to supply shocks.
As price pressures broaden across the basket, the risks of persistently high inflation becoming embedded rises, and the case for tighter monetary policy becomes stronger.
Increasing share of forecasters expecting high rates of inflation is a development that needs closely monitoring.
Broad based fiscal policy response to high inflation may necessitate a stronger response from monetary policymakers.
Quantitative tightening must be cautious and careful.
One area that we need to spend a bit more time thinking about is how fiscal and monetary policy work together.
- ECB?s de Guindos: Central bank needs to avoid ?M-shaped evolution of inflation?
- EUR/USD Forecast: Euro could extend correction on safe-haven flows
USD/CNH could extend the downside to the 6.9300 region in the next weeks, comment Markets Strategist Quek Ser Leang and Senior FX Strategist Peter Chia at UOB Group.
24-hour view: “We did not anticipate the choppy price actions in USD last Friday as it swung between 7.0050 and 7.0719 before closing at 7.0220 (0.24%). USD fell sharply in early Asian trade and further decline is likely. That said, the pace of any further decline is likely to be slower and the major support level of 6.9600 could be out of reach today. Resistance is at 7.0250, followed by 7.0480.”
Next 1-3 weeks: “We turned negative on USD last Thursday (01 Dec, spot at 7.0400). We indicated ‘the recent outsized drop is likely to extend to 7.0200, possibly as low as 7.0000’. USD easily took out both support levels as it plummeted to 7.0050 on Friday and 7.0000 in Asian trade today. We continue to expect USD weakness. The next levels to watch are at 6.9600 and 6.9300. On the upside, a break of 7.0810 (‘strong resistance’ was at 7.1250 last Friday) would indicate that the weakness in USD has stabilized.”
European Central Bank (ECB) Vice-President Luis de Guindos provides his outlook on growth and inflation during his latest appearance on Monday.
Inflation is starting to decelerate but still sees inflation hovering around 7% by mid-2023.
The ECB needs to avoid "M-shaped evolution of inflation" whereby there is a re-acceleration after slowing down.
The economic deceleration is not as deep as expected.
Amidst slightly hawkish comments from the ECB policymakers, EUR/USD is advancing 0.12% on the day to 1.0550, at the press time.
GBP/USD has climbed above 1.2300 for the first time since late June. Economists at ING believe that the pair is unlikely to extend its race higher beyond 1.25.
Cable is still a Dollar story
“We struggle to see Cable extend its rally to 1.25 and beyond, but it will undoubtedly be primarily a Dollar/risk sentiment story driving the pair before the BoE meeting.”
“A contraction below 1.20 seems more appropriate given global and UK macro fundamentals.”
See: GBP/USD now looks at 1.2400 – UOB