Americas Roundup: Dollar gains for second day on U.S. tax reform hopes, Gold slides to new low, Oil rises in anticipation of another U.S. crude drawdown-December 6th 2017

Market Roundup

• US Oct International Trade MM, -48.7 bln, -47.5 bln forecast, -43.5 bln previous -44.9 bln revised.

• US Oct Goods Trade Balance (R), -68.1 bln, -68.3 bln previous.

• US Nov ISM N-Mfg PMI, 57.4, 59.0 forecast, 60.1 previous.

• US Nov ISM N-Mfg Bus Act, 61.4, 61.5 forecast, 62.2 previous.

• US Nov ISM N-Mfg Employment Index, 55.3, 57.5 previous.

• US Nov ISM N-Mfg New Orders Index, 58.7, 62.8 previous.

• US Nov ISM N-Mfg Price Paid Index, 60.7, 62.7 previous.

• US w/e Redbook MM, -0.9%, -0.2% previous.

• US w/e Redbook YY, 3.0%, 4.8% previous.

• CA Oct Trade Balance, -1.47 bln, -2.70 bln forecast, -3.18 bln previous -3.36 bln revised.

• U.S. House Republicans mull length of spending bill as vote looms.

• Deutsche Bank gets subpoena from Mueller on Trump accounts –source.

• “Deadline of deadlines” in Brexit divorce talks this week.

• British PM May faces pressure to soften Brexit divorce after EU exit deal crumbles.

• Russia says ready to exert influence on North Korea – RIA.

• U.S. Senate panel backs Powell for Fed chief.

Looking Ahead – Economic Data (GMT)

• 00:30 Australia Q3 GDP QQ, 0.7% forecast, 0.8% previous

• 00:30 Australia Q3 GDP YY, 3.0% forecast, 1.8% previous

• 00:30 Australia Q3 GDP Final Consumption QQ, 0.8% previous

• 00:30 Australia Q3 GDP Capital Expenditure, 1.5% previous

• 00:30 Australia Q3 GDP Chain Price Index, -1.1% previous

Looking Ahead – Events, Other Releases (GMT)

• 01:30 BOJ Board Member Takako Masai speaks in Kobe, Western Japan

• 10:30 ECB's Mersch speaks in Frankfurt

• 15:00 BoC key policy interest rate announcement

Currency Summaries

EUR/USD is likely to find support at 1.1771 levels and currently trading at 1.1807 levels. The pair has made session high at 1.1843 and hit lows at 1.1798 levels. The euro declined against the U.S. dollar on Tuesday as greenback continued its upward march for the second day, as the currency continued to benefit from optimism surrounding U.S. tax reform. On Monday, the Republican-controlled House of Representatives voted to go to conference with the Senate on tax legislation, setting up formal negotiations on the bill that could take weeks to complete. The Republican-led Senate is expected to hold a similar conference vote later this week. Data released Tuesday showed the U.S. trade deficit increased to a nine-month high in October because of rising oil prices and the widening of America's long-standing deficits with China and Mexico. Additionally, the Institute for Supply Management (ISM) said its non-manufacturing index fell in November, missing economists' expectations. Investors are pricing in multiple rate increases from the Fed in response to strong U.S. employment data and a recent pickup in inflation but see limited upside for long-term inflation, even with the passage of the proposed tax bill. In the late New York trading, the dollar index, a gauge of the greenback's value against six major currencies, was up 0.3 percent at 93.36. The euro, meanwhile, was down 0.3 percent versus the dollar at $1.1821.

GBP/USD is supported in the range of 1.3352 levels and currently trading at 1.3434 levels. It reached session high at 1.3461 and dropped to session low at 1.3406 levels. Britain's pound rebounded from earlier losses against the dollar on Tuesday as investors were cautiously optimistic that a deal on opening up talks on post-Brexit trade would be reached by the end of the week. Britain said it was confident of a deal on Brexit just hours after a tentative agreement with the European Union over the Irish border was dashed by Prime Minister Theresa May's kingmakers in Belfast. After a tumultuous day on which a choreographed attempt to showcase the progress of Brexit talks was thwarted at the last minute, prompting a sell-off in the pound, May will try to gauge on Tuesday what her supporters in Northern Ireland's Democratic Unionist Party (DUP) might accept. Sterling was trading flat at 88.08 pence per euro by 1910 GMT, having earlier weakened to 88.68 pence per euro. Against a broadly stronger dollar, it was still down a third of a percent at $1.3444, but well above its earlier lows of $1.3370.

USD/CAD is supported at 1.2618 levels and is trading at 1.2694 levels. It has made session high at 1.2703 and lows at 1.2643 levels. The Canadian dollar weakened against its U.S. counterpart on Tuesday, paring some of its recent gains as stronger dollar across the board weighed on oil co-related Canadian dollar. On the data front, Canada's hard-hit export sector showed unexpected signs of strength in October, posting the first increase since May on higher shipments to the United States while imports continued to disappoint. Exports grew by 2.7 percent – the biggest month-on-month increase since March – in part due to higher shipments of energy products to the United States to make up for a recent drawdown in refinery inventories. Nine of 11 export categories posted advances. The data most likely came too late to influence the Bank of Canada. Analysts expect the central bank to keep interest rates unchanged when it unveils its next decision on Wednesday. The Canadian dollar initially edged up after the data, rising to C$1.2626 to the U.S. dollar, or 79.20` U.S. cents, from C$1.2648, or 79.06 U.S. cents, before the data were released. It later gave up all the gains. The Canadian dollar was last trading at C$1.2696 to the greenback, down 0.17 percent.

USD/JPY is supported around 112.35 levels and currently trading at 112.66 levels. It peaked to hit session high at 112.86 and made session lows at 112.55 levels. The U.S. dollar strengthened against the yen on Tuesday as the dollar received a boost after the U.S. Senate approved a tax overhaul. The House of Representatives on Monday voted to go to conference with the Senate on their differing versions of the tax legislation, setting up formal negotiations on the bill. Investors kept the currency well bid as they waited to see how the next step of the legislation would proceed. Investors are also looking ahead to the upcoming U.S. non-farm payrolls report later this week, which will be the last employment report before the Federal Reserve's monetary policy meeting next week. The Fed is almost certain to raise interest rates later this month, according to a poll of economists, a majority of whom now expect three more rate rises next year compared with two when surveyed just weeks ago. Fed funds futures prices show that investors see a rate increase at the U.S. central bank's Dec. 12-13 meeting as a certainty and odds of bringing the U.S. overnight interest rate to a range of 1.50-1.75 percent, a 50-basis-point hike, has risen to nearly 10 percent. Futures prices show a zero percent chance of rates remaining at their current level of 1.00-1.25 percent.

Equities Recap

European shares slipped on Tuesday as cyclical stocks fell, while dwindling enthusiasm over a U.S. tax bill weighed on financial service providers.

UK's benchmark FTSE 100 closed down 0.09 percent, FTSEurofirst 300 ended the day down by 0.02 percent, Germany's Dax ended up by 0.04 percent, France’s CAC finished the day down by 0.14 percent.

Wall Street dipped on Tuesday as investors assessed how a Republican tax overhaul would impact corporate earnings.

Dow Jones closed down by 0.46 percent, S&P 500 ended down 0.38 percent, Nasdaq finished the day down by 0.19 percent.

Treasuries Recap 

Short-dated U.S. Treasury yields rose to their highest in more than eight years on Tuesday as investors increasingly expected the U.S. Congress to pass tax reform legislation and the Federal Reserve to raise interest rates several times next year.

The yield on two-year Treasury note, the most sensitive to Fed policy expectations, rose to 1.835 percent. The three-year note yield touched 1.95 percent.

The spread between yields on the five-year Treasury note and 30-year bond dropped to 57.3 basis points, the narrowest since October 2007.

The 30-year bond rose 26/32 in price to yield 2.73 percent, down around four basis points from its late Monday levels.

Commodities Recap

Gold dropped 1 percent to a two-month low on Tuesday as the dollar rose against a basket of currencies and U.S. stocks rebounded as investors assessed details of the U.S. tax overhaul legislation.

Spot gold was down 1 percent at $1,263.02 an ounce by 1:49 p.m. EST (1849 GMT), after dropping to a two-month low of $1,260.71.

U.S. gold futures for February delivery settled down $12.80, or 1 percent, at $1,264.90 per ounce.

Oil edged higher on Tuesday, supported by strong demand, expectations of a drop in U.S. crude inventories and an OPEC-led deal to extend oil output cuts.

Brent crude settled up 41 cents, or 0.7 percent, at $62.86 a barrel while U.S. West Texas Intermediate crude ended 15 cents, or 0.3 percent, higher at $57.62 a barrel.


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