New York Forex Report: Sterling Standout, US GDP Eyed

New York Forex Report: Sterling Standout, US GDP Eyed

New York Forex Report: The USD is staging a modest comeback after sustaining losses for much of the past month. In the short-term, yesterday’s Senate Budget committee decision allows its tax plan to advance to the floor for a vote as soon as this week, sustaining optimism that tax cuts might still be implemented in short order and lifting USD sentiment. Gains may extend modestly in the near term but many are sceptical that the USD’s bounce will be significant as tax cuts still face some significant hurdles and their economic impact is questionable. Meanwhile, cumulative USD losses through Nov overall suggest that the dollar rebound underway since early Sep has run its course. On the day so far, the USD is mostly higher against its G10 peers but the GBP is building on yesterday’s late gains (driven by news of a breakthrough on the Brexit “divorce bill”) and remains an out-performer on the day. Global stocks are (mostly) firmer while commodities are mixed; gold is firmer, industrial metals are down sharply on the day while WTI is little changed from last night’s close. Month end is looming and may affect liquidity and flows in the next 24 hours but markets also have some data to focus on today in the US, the second reading of Q3 GDP, pending home sales and the Beige Book. Chair Yelln appears before the Joint Economic Committee while Dudley, Williams and Kashkari all have public engagements today.

NORTH AMERICA New York Fed President William Dudley is not worried about sub target inflation and expects prices to rebound with the economy expanding at above-trend pace. He also stated, at a discussion at University of California Berkeley early yesterday, that he is not concerned about the Fed Chair transition. On the labour market, Dudley conveyed that the US economy is “pretty much” at full employment, with job market tightening and experiencing a bit more wage growth, both of which likely explains his confidence that prices will rise. Wholesale inventories rose 0.4% MoM in Oct, up from a downwardly revised 0.1% in Nov. House prices across 20 major US cities rose 6.19% YoY in Sept, ticking higher from 5.82% and suggest that the housing sector remains firm. Consumer sentiment also improved in Nov as measured on the Conference Board’s index that rose to 129.5 from 126.2 previously. Topping it off was increased manufacturing activity in Richmond according to the Richmond Fed index that jumped to 30 in Nov from 12 in Oct.

EUROPE European Central Bank (ECB) reported that M3 grew 5.0% YoY in Oct, representing no change in trend from that seen over the past couple years. After adjusting for sales and securitisation, growth in loans to households was steady at 2.7% YoY, whereas growth in loans to corporates increased to a new high of 2.9% YoY. Germany’s Gfk consumer confidence index was steady at just below its recent 16-year high, whilst the French consumer confidence index rose modestly. Spain’s retail sales disappointed with a 0.1%YoY decline reported in Oct. The Bank of England (BoE) released its Financial Stability Report and the results of the annual bank stress test exercise. The latest 2017 stress test – based on a scenario more severe than the GFC – indicated that banks would incur losses of around GBP50bn in the first two years of the stress. Whilst this scale of loss would have wiped out the common equity capital base of the UK banking system a decade ago, the test showed that these losses can now be absorbed within the buffers of capital banks have on top of their minimum requirements. No bank needs to strengthen its capital position as a result of the stress test.

ASIA releases from Japan suggest that recent upticks may have peaked. Spending in Oct showed signs of weakness as retail sales stagnated on a monthly basis after rising 0.8% in Sept, while sales declined 0.2% YoY after accelerating to 2.3% in Sept. Meanwhile, purchases at departmental stores and supermarkets fell 0.7% YoY, down from 1.9% increase in Sept.

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 1.1820, 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: Neutral
Trading Take-away: Neutral

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

Technical: 1-3 Day View – Range resistance 1.3330/60 removed focus shifts to 1.3460 next through here opens prior cycle highs at 1.3650 near term support sited at 1.3230 only below 1.3185 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: Neutral
Trading Take-away: Neutral

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

Technical: 1-3 Day View – pivotal 110.85 test underway, near term resistance moves to 112 and bears have the ball while below 113, a breach of 110.60 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: Bullish
Trading Take-away: Short

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

Technical: 1-3 Day View – Retest of range support once again attracts bids below 131, as this level survives on a daily closing basis expect a retest of 132.60/80 over here opens 134 range resistance. Failure below 131 opens 130.66 ahead of 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: Neutral
Trading Take-away: Neutral

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