Europe Roundup: Sterling tumbles below 1.2600 following downbeat industrial report, euro range bound ahead of ECB policy meeting, European shares advance – Wednesday, December 7th, 2016

Market Roundup

  • USD/JPY +0.02%, EUR/USD +0.01%, GBP/USD -0.7%
  • DXY +0.07%, DAX +1.52%, Brent +0.22%, Iron +6.53%
  • Germany Oct Industrial Output 0.3% m/m vs revised -1.6% previous, +0.8% expected
  • UK Oct Industrial Output -1.1% y/y vs 0.3% previous, 0.5% expected
  • UK Oct manufacturing Output -0.9% y/y vs 0.2% previous, 0.8% expected
  • UK Nov Halifax House Price +6.0% y/y vs 5.2% previous, 6.0% expected
  • Riksbank Deputy Governor Jansson-Sounds more hawkish in speech
  • Turkey’s Erdogan – Econ being targeted through FX speculation
  • BoJ Deputy Governor Iwata – Won’t hesitate to ease more if needed
  • Iwata – approach of powerful ease via asset purchase/rates working
  • Japan Dec Reuters Tankan manufacturing index   +16, high since Aug ’15, +14 Nov
  • Australia Q3 GDP -0.5% q/q, +1.8% y/y, +0.3%/+2.5% eyed
  • New Zealand Nov job ads +2.9% m/m, best pace in almost 2-years, +18% y/y

Economic Data Ahead

  • (1000 ET/1500 GMT) The U.S. Labor Department releases Job Openings and Labor Turnover Survey (JOLTS) report for the month of October. The report is expected to show that job openings rose 14,000 to a seasonally adjusted 5.5 million from 5.4 million in September.
  • (1000 ET/1500 GMT) Bank of Canada will meet to announce its benchmark interest rate, where it is expected to hold interest rates at 0.50 percent.
  • (1000 ET/1500 GMT) The National Institute of Economic and Social Research will report Britain's GDP estimate in the three months through November. The indicator rose 0.4 percent in the previous month.
  • (1030 ET/1530 GMT) The Energy Information Administration (EIA) reports its Crude Oil Stocks for the week ending December 2.
  • (1500 ET/2000 GMT) The U.S. Federal Reserve is likely to report that consumer credit declined to $19.0 billion in October from $19.29 billion the month before.
  • (1850 ET/2350 GMT) Japan's  Cabinet Office will release gross domestic product for the third quarter. The economy grew at a pace of 0.5 percent in the previous quarter.
  • (1850 ET/2350 GMT) Japan's Ministry of Finance reports foreign investment in domestic stocks for the week ending December 2.
  • (1850 ET/2350 GMT) Japan's Ministry of Finance will report foreign bond investment for the week ending December 2.
  • (1850 ET/2350 GMT) Japan's Customs Office will release Trade Balance (BOP Basis) figures for the month of October. The economy posted a trade surplus of 642.4 billion yen in the earlier month.

Key Events Ahead

  •  (1145 ET/1645 GMT) FedTrade operation 30-year Fannie Mae / Freddie Mac max $2.500 bln

FX Beat

DXY: The dollar edged up towards a 10-month high against the yen, as investors nervously awaited central bank monetary policy decisions. The greenback against a basket of currencies trades 0.3 percent up at 100.48, having hit a low of 99.85 hit on Tuesday, its lowest since Nov. 15. FxWirePro's Hourly Dollar Strength Index stood at 11.30 (Neutral) by 1100 GMT.

EUR/USD: The euro steadied as investors cautiously awaited Thursday's European Central Bank policy meeting outcome. The ECB is widely expected to announce an extension to its quantitative easing programme, however, investors are uncertain whether the size of the monthly asset purchases will be kept steady or scaled back. The European currency trades 0.07 percent up at 1.0723, having touched a 3-week high of 1.0796 on Monday. FxWirePro's Hourly Euro Strength Index stood at 107.36 (Highly Bullish) by 1100 GMT. Any break above 1.0820 will take the pair to next level till 1.0875/1.0900/1.1000. On the lower side, minor support is around 1.0690 (21-4 H MA) and any break below will drag it down till 1.0640 (100- 4H MA)/1.06130 (61.8% retracement of 1.05047 and 1.07960). Any close below 1.0500 confirms further weakness.

USD/JPY: The dollar edged up, but was struck in a narrow range as investors seemed reluctant to initiate fresh positions ahead of influential central bank monetary policy decisions. On Thursday, the ECB is likely to extend its bond-buying program, while on the other hand, the Federal Reserve is widely expected to hike interest rates next week. The major trades 0.1 percent up at 114.10, hovering just below this week's high of 114.77 hit on Monday. FxWirePro's Hourly Yen Strength Index stood at -109.01 (Highly Bearish) by 1100 GMT. The major resistance is around 115 and a break above targets 115.52 (161.8% retracement of 113.89 and 112.05)/116. On the lower side, minor support is around 113.50 (38.2% retracement of 114.82 and 111.35) and any break below targets 112.80/112.

GBP/USD: Sterling slumped below 1.2600 handle after data showed British industrial output suffered its biggest monthly fall in more than four years, while factory output also tumbled. Industrial output fell 1.3 percent in October after a 0.4 percent decline in September, while output in manufacturing dropped by 0.9 percent, recording its biggest fall since February after gaining 0.6 percent in September.  Sterling trades 0.7 percent down at 1.2589, having hit a high of 1.2774 on Tuesday, its highest since Oct. 6. FxWirePro's Hourly Sterling Strength Index stood at -110.26 (Highly Bearish) by 1100 GMT. The temporary top formed at 1.27750 (Dec 7th high) will be acting as major trend reversal level and any break above will take the pair till 1.2800/1.2845. On the lower side, any break below 1.26000 will drag it down till 1.2550/1.2500. Against the euro, the pound trades 0.7 percent down at 85.12 pence, having hit a 7-day low of 85.28 pence earlier in the session.

USD/CHF: The Swiss franc edged down, extending losses from the previous session, as the greenback gained on rising expectations of an imminent U.S. interest rate hike next week. The dollar trades up at 1.0102, retreating from a low of 1.0049 hit in the previous session, its lowest since Nov. 17. FxWirePro's Hourly Swiss Franc Strength Index stood at -20.82 (Neutral) by 1100 GMT. Minor trend is looking slightly bullish and a jump till 1.0150 is possible. It should break above the temporary top of 1.0248 for further bullishness and any break above that level will take the pair till 1.0260/1.0300. On the lower side, it should break below 1.0045 for further selling and any violation below 1.0045 will take it till 1.000/0.9958 (161.8% projection).

AUD/USD: The Australian dollar attempted a minor recovery after declining to an early low of 0.7416 following worse-than-expected Australia's third quarter gross domestic data. The selling pressure around the was limited as the RBA at its monetary policy meeting on Tuesday had stated that the economy could possibly witness a slowdown before picking up again. The Aussie trades 0.2 percent lower at 0.7446, pulling closer to a high of 0.7500 touched mid-November. FxWirePro's Hourly Aussie Strength Index stood at 73.45 (Bullish) by 1100 GMT. On the higher side, major resistance is around 0.7500 (29th Nov high) and any break above will take the pair till 0.7580/0.7635. The major support is around 0.7380 and break below will drag it till 0.73500/0.7300. The short-term weakness is below 0.7300.

NZD/USD: The New Zealand dollar rose, reversing most of its previous session losses, supported by a rise in dairy prices at a global auction overnight. However, gains were limited as volatile oil prices and stronger U.S dollar across the board weighed on the major. The Kiwi trades 0.2 percent higher at 0.7134, hovering towards a 6-day high of 0.7160 hit in the previous session. FxWirePro's Hourly Kiwi Strength Index was at 67.07 (Bullish) by 1100 GMT. Immediate resistance is located at 0.7150, a break above could take it near 0.7200. On the downside, support is seen at 0.7069 (Dec 5-Low), a break below could drag it till 0.7030/ 0.7000.

Equities Recap

European shares advanced, following gains in Asian stocks on expectations the European Central Bank would extend its bond-buying stimulus scheme on Thursday.

The pan-European STOXX 600 index increased 0.78 percent at 347.27 points, while the FTSEurofirst 300 index added 0.8 percent at 1,371.92 points.

Britain's FTSE 100 trades 1.3 percent up at 6,868.72 points, while mid-cap FTSE 250 soared 0.5 percent at 17,534.65 points.

Germany's DAX rose 1.49 percent at 10,936.77 points; France's CAC 40 trades 1.03 percent higher at 4,679.72 points.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4 percent.

Tokyo's Nikkei gained 0.74 percent to 18,496.69 points, Australia's S&P/ASX 200 index rose 0.87 percent to 5,476.00 points and South Korea's KOSPI edged up 0.1 percent at 1,991.89 points.

Shanghai composite index climbed 0.7 percent at 3,222.24 points, while CSI300 index advanced 0.5 percent at 3,475.75 points. Hong Kong’s Hang Seng added 0.6 percent at 22,800.92 points.

Commodities Recap

Crude oil prices steadied as traded waited to see if OPEC and Russia could deliver promised production cuts to restrain a supply glut. International benchmark Brent crude was 0.3 percent up at $54.10 per barrel by 0926 GMT, hovering just below a 16-month high of $55.30 hit on Monday. U.S. West Texas Intermediate crude rose 0.3 percent at $51.05 a barrel, after rising to a high of $52.39 earlier in the week, it’s highest since mid- July.

Gold prices continued to trade between narrow ranges, as the dollar gained on increasing expectations of Federal Reserve interest rate hike next week. Spot gold was up 0.1 percent at $1,171.02 per ounce by 1030 GMT, after ending the prior session nearly flat. U.S. gold futures shed 0.1 percent at $1,169 an ounce.

Treasuries Recap

The U.S. Treasuries saw mixed performance during a relatively quiet Wednesday session that witnessed data of little significance. The yield on the benchmark 10-year Treasury note fell 2 basis points to 2.37 percent, the yield on long-term 30-year Treasury also dipped 2 basis points to 3.06 percent and the yield on short-term 2-year note bounced 1/2 basis point to 1.11 percent.

The UK gilts gained after recent data showed that the country’s industrial production declined higher than expected in October. The yield on the benchmark 10-year gilts fell 2-1/2 basis points to 1.39 percent, the super-long 30-year bond yield dipped 1-1/2 basis points to 2.03 percent and the yield on short-term 2-year slid 1-1/2 basis points to 0.12 percent.

The German bunds traded narrowly mixed as investors await the European Central Bank (ECB) monetary policy meeting scheduled to be held on December 8. The yield on the benchmark 10-year bond fell 1-1/2 basis points to 0.35 percent, the yield on long-term 30-year note dipped 1-1/2 basis points to 1.02 percent and the yield on short-term 2-year bond bounced 1 basis point to -0.69 percent.

The Japanese government bonds traded mixed ahead of the third-quarter gross domestic product (GDP), which is scheduled later in the day. Also, investors remain keen to focus on the Thursday’s super-long 30-year auction. The benchmark 10-year bond yield fell nearly 1 basis point to 0.04 percent, the yield on long-term 30-year note jumped 1-1/2 basis points to 0.64 percent and the yield on short-term 3-year note slid 1/2 basis point to -0.15 percent.

The New Zealand government bonds closed modestly higher despite global dairy prices rising to its highest level since June 2014 at the overnight Global Dairy Trade (GDT) auction as demand remained upbeat. The yield on the benchmark 10-year bond closed 1 basis point lower at 3.24 percent, the yield on 7-year note ended down nearly 1 basis point to 2.82 percent and the yield on short-term 2-year note fell 1 basis point to 2.17 percent.

The Australian government bonds gained after recent data showed that the country’s third-quarter gross domestic product (GDP) declined for the first time since global financial crises. The yield on the benchmark 10-year Treasury note fell more than 1 basis points to 2.80 percent, the yield on 15-year note dipped 2 basis points to 3.26 percent and the yield on short-term 2-year slid 4 basis points to 1.83 percent.

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