New York Forex Report: Buck Bid Ahead of Yellen Farewell

New York Forex Report: Buck Bid Ahead of Yellen Farewell

New York Forex Report: Quiet trade persists as the two-day FOMC meeting gets underway today (25bps increase in the Fed funds target rate expected at tomorrow’s announcement). The USD has ranged broadly, if modestly higher against some G10 counterparts on the day. CAD finding some support on more modest WTI gains. M&A news lifted the AUD after business confidence and house price data disappointed. The US data schedule picks up a little more today, with Nov PPI data expected to rise 0.3% MoM after consecutive gains of 0.4% in Sep and Oct. The NFIB Small Business Optimism index is already out, showing a further, unexpected, gain to a multi-year record of 107.5, likely reflecting business hopes for progress on tax cuts. GBP is little changed despite inflation data looking a little “toastier” in Nov. Asian equities slipped while European stocks are firmer, allowing European bond markets to slide modestly. US Treasurys are little changed on the day. Major commodities are mostly firmer on the day. Look for another day of narrow range trading ahead of the FOMC announcement; considering the fact that a rate hike is widely expected and reflected in short-term rates and that Chair Yellen is likely to stick with a fairly simple message on the outlook ahead of her handover to Powell the USD may struggle to extend much more significantly in the near-term.

NORTH AMERICA No major US data out of the bag overnight and markets were generally mired in an upbeat mode as it awaits the kickstart of a two-day FOMC meeting that will most likely than not yield another 25bps increase in the Fed funds target rate, a third and the last for the year.

EUROPE Continue to expect political headlines to plague the GBP as we head into the BOE policy decision and the EU Council meeting on Thursday. If gilt movements are any indication, it suggests scepticism over the negotiations ahead. Comments from Davis on Monday appeared to undermine last Friday’s deal with EU negotiators. Trade talks will also commence under very different starting positions, underlying the difficulties ahead. Meanwhile markets do not expect to see significant policy announcements from the ECB on Thursday. However, keep a close watch on possible upward revisions in the growth and inflation forecasts ahead, which may give the EUR some positive pressure. A report from Rightmove suggest the pace of increase in house prices in the UK has slowed to 1.2% YoY in Dec (Nov: +1.8%) mainly dragged by lower prices in London, reaffirming extended softness in the UK housing sector.

ASIA In Japan, BSI surveys showed increased optimism across all industries reflecting improved sentiments on business outlook. However, forward looking indices for the next two quarters were apparently downbeat, with the large all industry index expected to pull back in the next two quarters as large manufacturers reduced their optimism. In line with the upbeat business sentiments in 4Q, machine tool orders sustained a 46.9% YoY increase in Nov, amid slightly quicker increase in foreign orders and more moderate increase in domestic orders. In a separate release, PPI surprisingly picked up to 3.5% YoY in Nov, suggesting still firm underlying price pressure in Japan even though it remains far below BOJ’s desirable level.

EURUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – 1.1720 reversal encourages another run at 1.20, failure back below 1.17 opens 1.16

1-3 Week View – 1.2130 the next upside objective. Weekly close below 1.16 neutralises bullish objectives opening a test of 1.14
Retail Sentiment: Neutral
Trading Take-away: Neutral

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – Near term support sited at 1.3340/20 as this survives expect a 1.34 test ahead of prior cycle highs 1.3545, only below 1.3230 concerns recovery.

1-3 Week View – 1.3263 achieved as this acts as support 1.3836 is the next upside objective only a close back below 1.30 would jeopardise the bullish advance.
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Near term resistance moves to 113.30/60, a breach of this level opens 114.70, below 11.73 opens 110.85 retest.

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bearish
Trading Take-away: Long

EURJPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Retest of 134 range resistance persists a closing breach opens 136 as the primary upside objective. Only failure below 130.66 concerns bullish bias and opens pivotal 127.50.

1-3 Week View – 136.10 is the principle upside objective as this area caps the current advance expect a retest of 131.50 to set a base for the next leg higher, a closing breach of 131 concerns the bullish basis.
Retail Sentiment: Bearish
Trading Take-away: Long