New York Forex Report: Dollar Struggling After Initial Strength

New York Forex Report: Dollar Struggling After Initial Strength

New York Forex Report: The USD has turned softer after recovering at the start of the week, benefiting from the progress of tax cut legislation through the Senate (the House and Senate now have to reconcile their competing plans) and ABC News’ correction of its reporting on General Flynn’s indictment on Friday. US yields have firmed in response to signs that tax cuts are getting closer to reality but developed market bonds are broadly under-performing and US Treasury yields have only risen around half a tick higher than Bunds while Gilt yields are nearly a full point firmer on the day. GBP is out-performing on the session amid Brexit optimism while the CAD remains well-supported, pressuring the USD following last Friday’s robust jobs data. The CHF and JPY are under-performing as risk appetite returns to markets (European stocks are up 1% + on the day). Despite broader gains in the USD today, major currencies are largely still range bound, supporting the contention that much of the “good” news is already factored in to the USD at this point. The broader impact of proposed tax cuts on the US economy remain somewhat debatable as well. Watchers suspect that the market may be subject to additional volatility in respect of any additional developments in the Russia investigation. For the week ahead, tax cut reconciliation, the risk of a partial Government shutdown in the US and the NFP report backload a lot of event risk into the tail end of the week, suggesting perhaps fairly quiet trade initially.

NORTH AMERICA The official reading by ISM in the US marked its second straight month of softening trend, tapered off more than expected to 58.2 in Nov but the Markit final print showed a smaller pullback to 53.9, vs the initial estimate of 53.8, down from the nine month high of 54.6 in Oct dragged by employment and output. US tax reform took another positive step on Friday (1 Dec) as the US Senate voted 51-49 to approve tax overhaul. Voting was largely along party line with the sole Republican, Senator Corker voting against the bill. Talks will begin between Senate and House of Representatives for a single bill to be sent to Trump for signing. But the significant differences between the GOP House and Senate tax bills, means that the next negotiation process of getting a unified final tax bill could be well extended into 2018 before reaching agreement

EUROPE manufacturing activities in the Eurozone expanded at its fastest pace in 17.5 years, to 60.1 in Nov, thanks to a rally in new orders. Similarly, PMI manufacturing index in the UK also increased to a four year high of 58.2 in the same month under review, boosted by faster increases in new orders as well. European event risk on Monday is with UK PM Theresa May’s lunch with European Commission President Jean-Claude Juncker and she is expected to present her best offer (prepared to make some concessions on the role of the ECJ) to Juncker in the hope that talks can progress to trade by year-end.

ASIA Nikkei PMI manufacturing from Japan was a tad softer than the initial estimate of 53.8 at 53.6 in Nov, but still marked an uptick from 52.8 in Oct and its highest level on record, adding to signs recovery in the Japanese economy is gradually gaining traction. Separate releases showed jobless rate remained steady at 2.8% in Oct while household spending stagnated, rebounding from a 0.3% YoY decline in Sept. Inflationary pressure remained very soft with the national CPI softened to 0.2% YoY, as expected, dragged by a 1.3% decline in food prices. Even though core CPI ticked a notch higher to 0.8% YoY in Oct, it remained far off BOJ’s 2% target that suggests much still need to be done to drive prices higher.

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

Technical: 1-3 Day View – 1.2092 cycle high vulnerable to retest, near term upside hurdle sited at 1.2010/30, near term support moves to 1.1810, below 1.18 suggests a false upside break an opens a retest of 1.17

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: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – 1.3460 achieved, through here opens prior cycle highs at 1.3650 near term support sited at 1.3390 only below 1.3230 concerns bullish bias

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: Bearish
Trading Take-away: Long

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

Technical: 1-3 Day View – Initial 110.85 test prompts profit taking , near term resistance moves to 113.30, a breach of this level opens 114.70, below 11.45 opens 109.30/10 as the next downside objectives

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: Neutral
Trading Take-away: Neutral

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

Technical: 1-3 Day View – retest of 134 range resistance underway 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

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