Europe Roundup: Sterling hits 2-week peak against euro on upbeat manufacturing PMI, euro slips below 1.0400, European shares gain amid risk-on sentiment – Tuesday, January 3rd, 2017

Market Roundup

  • Dollar index rises more than 1 percent on day to six-day high of 103.45
  • Euro slips below $1.04 for first time in six days, down 0.6 percent on day
  • Turkish lira weakens to record low level of 3.6 against dollar after higher-than-expected inflation
  • UK Dec manufacturing PMI new orders 55.7 vs Nov 54.0, three-month high
  • Swiss total sight deposits at 528.965 bln sfr in week ending December 30 versus 528.351 bln sfr a week earlier
  • Swiss sight deposits of domestic banks at 466.272 bln sfr in week ending December 30 versus 463.63 bln sfr a week earlier
  • Turkish December PPI +9.94 percent y/y – statistics institute
  • Turkish December PPI +2.98 percent m/m – statistics institute
  • Fitch publishes Oman's 'BBB' IDRS; outlook stable
  • United kingdom Dec Markit/CIPS Manufacturing PMI increase to 56.1 (forecast 53.3 ) vs previous 53.4
  • Germany Dec unemployment total SA decrease to 2.638 mln vs previous 2.655 mln (revised from 2.658 mln)
  • Germany Dec unemployment rate SA stays flat at 6.0 % (forecast 6.0 %) vs previous 6.0 %

Economic Data Ahead

  • (0930 ET/1430 GMT) The RBC will release Canada's Manufacturing PMI for the Month of December. The indicator stood at 51.5 in the prior month.
  • (0945 ET/1445 GMT) Financial firm Markit releases U.S. Manufacturing PMI for the month of December. The index posted a final reading of 54.2 in the previous month.
  • (1000 ET/1500 GMT) The Institute for Supply Management (ISM) is expected to report that U.S. manufacturing Purchasing Managers' index rose to 53.5 in December from 53.2 in November.
  • (1000 ET/1500 GMT) The Commerce Department is likely to report that U.S. construction spending increased 0.6 percent in November after rising 0.5 percent in the previous month.

Key Events Ahead

  • No Significant Events Scheduled

FX Beat

DXY: The dollar advanced to a 3-week high against the yen on the back of growing expectations of more U.S. government borrowing and higher Federal Reserve interest rates. The greenback against a basket of currencies traded 0.7 percent higher at 103.45, hovering towards 2016 high of 103.65. FxWirePro's Hourly Dollar Strength Index stood at 108.87 (Highly Bullish) by 1100 GMT.

EUR/USD: The euro declined below the 1.0400 handle, as the bid tone around the U.S dollar strengthened against a basket of major currencies. Investors seem to have ignored better-than-expected German employment data, which showed unemployment rate seasonally adjusted for December at 6 percent, in line with consensus and previous. The European currency trades 0.4 percent lower at 1.0413, having hit a low of 1.0396, its lowest since Dec. 28. FxWirePro's Hourly Euro Strength Index stood at -128.29 (Highly Bearish) by 1000 GMT. The major should break above 1.0670 for the minor bullishness and any break above will take the pair till 1.08735 (Dec 8 High)/1.0935 (100- day MA)/1.1000. On the lower side, any break below 1.03500 confirms bearish continuation, a decline till 1.0255/1.01574 (161.8% retracement of 1.03522 and 1.06530) is possible.

USD/JPY: The dollar rose to a 3-week high above the 118.00 handle against the Japanese yen, as the prospect of rising U.S. interest rates this year kept the bid tone around the greenback intact. Moreover, upbeat reading on Chinese manufacturing also strengthened risk-on market sentiment, driving investors away from traditional safe-haven assets, thus weighing on the Japanese Yen. The major trades 0.5 percent up at 118.13, having hit a high of 118.20, it’s highest since Dec. 20. FxWirePro's Hourly Yen Strength Index stood at -78.05 (Slightly Bearish) by 1000 GMT. The major resistance is around 119 and break above targets 120. On the lower side, minor support is around 117.05 (daily Tenken-Sen) and any break below targets 116/115.01 (daily Kijun-Sen).

GBP/USD: Sterling rose, reversing some of its previous session losses, after a survey indicated British manufacturing growth advanced to a two-and-a-half-year high last month. The economy's purchasing manager’s index for the manufacturing sector rose to 56.1 in December, beating forecast of 53.0 and recording the strongest reading since June 2014. Sterling edged up 0.1 percent to 1.2288, hovering away from an early low of 1.2246. The upside is capped by 21- day EMA and any minor bullishness can be seen only if it closes above that level. Any close above 1.2380 will take the pair to next level till 1.2510/1.2550 (61.8% retracement of 1.27747 and 1.22005). The short term trend reversal is only above 1.2800. On the lower side, short term support stands at 1.2200 and any break below will drag it till 1.2150/1.2080 level. Against the euro, the pound trades 0.5 percent up at 84.73, having hit a 2-week high of 84.58 earlier in the session.

USD/CHF: The Swiss franc slumped, extending losses from the previous session, as the greenback boosted against the basket of currencies amid risk-on market profile. The dollar trades 0.5 percent up at 1.0288, attempting to take-out the 1.0300 handle. FxWirePro's Hourly Swiss Franc Strength Index stood at -84.42 (Slightly Bearish) by 1000 GMT. The jump from 0.95493 and 1.03435 will come to end if the pair breaks below 1.000 level. Any break below 1.000 will drag the pair down till 0.9909/0.9820 (200- day MA). On the higher side, break above 1.03435 will take it to next level till 1.04180 (161.8% retracement of 1.03435 and 1.02179) in the short term. The minor resistance is around 1.02500.

AUD/USD: The Australian dollar rose following the release of upbeat Chinese manufacturing data, however, it trimmed gains as the U.S. dollar gathered traction on expectations of faster U.S. economic growth. Moreover, risk-on sentiment across the global equity and commodity markets provided an additional boost to the recovery mode from near multi-month lows. The Aussie trades 0.3 percent up at 0.7202, having touched an intra-day high of 0.7235. FxWirePro's Hourly Aussie Strength Index stood at -19.58 (Neutral) by 1100 GMT. On the higher side, minor resistance is around 0.7246 (23.6% retracement of 0.75233 and 0.71599) and any break above will take the pair to next level till 0.7300 (38.2% retracement of 0.75230 and 0.71599)/0.7316 (21- day MA). The major support is around 0.7150 and break below will drag it till 0.70690/0.7000.

NZD/USD: The New Zealand dollar eased as the U.S. dollar strengthened against its major peers in anticipation of more U.S. government borrowing and higher Federal Reserve interest rates. Earlier in the day, the major rose to an intra-day high of 0.6974, however, turned lower amid persistent U.S. dollar strength. The Kiwi trades 0.2 percent down at 0.6907, attempting to sustain gains above the 0.6900 handle. FxWirePro's Hourly Kiwi Strength Index was at -44.82 (Neutral) by 1100 GMT. Immediate resistance is located at 0.6978 (Dec 30 High), a break above could take it over 0.7000. On the downside, support is seen at 0.6900, a break below could drag it till 0.6862.

Equities Recap

European shares gained, strengthened by upbeat Chinese manufacturing data, while the dollar rose to a 3-week high against the Japanese safe-haven yen.

The pan-European STOXX 600 index increased 0.6 percent at 365.41 points, while the FTSEurofirst 300 index added 0.57 percent at 1,445.06 points.

Britain's FTSE 100 trades 0.4 percent up at 7,171.77 points, while mid-cap FTSE 250 advanced 0.20 percent at 18,112.16 points.

Germany's DAX edged down 0.08 percent at 11,588.83 points; France's CAC 40 trades 0.4 percent higher at 4,902.75 points.

MSCI's broadest index of Asia-Pacific shares rose 0.6 percent.

Australia's S&P/ASX 200 index rose 1.16 percent to 5,731.40 points and South Korea's KOSPI added 0.88 percent at 2,043.97 points.

Shanghai composite index gained 1.0 percent at 3,135.92 points, while CSI300 index rose 1.0 percent to 3,342.23 points. Hong Kong’s Hang Seng climbed 0.7 percent at 22,150.40 points.

Commodities Recap

Crude oil prices rose by more than 2 percent, strengthened by hopes that a deal between OPEC and non-OPEC members to cut production will reduce a global supply glut. International benchmark Brent crude was trading 2.5 percent higher at $58.13 per barrel by 0933 GMT, having hit a high of $58.35, its highest since July 2015. U.S. West Texas Intermediate crude rose 2.3 percent at $54.98 a barrel, after rising as high as $55.21, its highest since July 2015.

Gold prices eased, extending previous session losses, as the U.S. dollar hit a 3-week high against the safe-haven yen. Spot gold was trading 0.2 percent lower at $1,148.28 per ounce, while U.S. gold futures rose 0.6 percent to $1,158.50.

Treasuries Recap

The U.S. Treasuries started 2017 on a weaker note as investors moved away from safe-haven buying on expectations of three rate hike from the Federal Reserve. The yield on the benchmark 10-year Treasury note rose 6-1/2 basis points to 2.49 percent, the super-long 30-year bond yield also jumped 6-1/2 basis points to 3.11 percent and the yield on short-term 2-year note bounced 2-1/2 basis points to 1.22 percent.

The UK gilts slumped on first trading day of 2017 as recent data showed that the country’s manufacturing PMI rose to highest since June 2014 in December. The yield on the benchmark 10-year gilts rose 7 basis points to 1.31 percent, the super-long 30-year bond yield also climbed 8 basis points to 1.94 percent and the yield on short-term 2-year bounced 5 basis points to 0.13 percent.

The German bunds declined after the country’s unemployment registered biggest monthly drop since January, which represents a positive sign for the economy. Also, investors awaited consumer inflation data for December, scheduled to be released on January 3 at 13:00 GMT. The yield on the benchmark 10-year bond rose 6-1/2 basis point to 0.24 percent, the long-term 30-year bond yield also climbed 7 basis points to 1 percent and the yield on short-term 3-year bond bounced 2-1/2 basis points to -0.73 percent.

The Australian government bonds traded narrowly mixed in thin trading activity during a relatively quiet Tuesday session that witnessed data of little significance. We foresee that Treasury prices will keep drifting between small gains and losses in quiet trading session. The yield on the benchmark 10-year Treasury note fell 1 basis points to 2.75 percent, the yield on 15-year note hovered around 3.22 percent, while the yield on short-term 2-year slid 1/2 basis point to 1.90 percent.

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