EU Open - Dollar retraces, but Pound remains under pressure

Markets Overview:

  • Equities: Nikkei (+1.23 %), Hang Seng (+0.62 %), CSI 300 (+0.13 %), KOSPI (-0.17 %), ASX 200 (-0.80 %)
  • Commodities: WTI Crude $51.93 (-0.06 %), Brent Crude $54.94 (+0.00 %), Natural Gas $3.14 (+1.29 %), Gold $1187.31 (+0.53 %), Copper $255.85 (+0.79 %)

What traders are talking about:

Dollar retraces

The Greenback came under pressure overnight amid position covering from USD longs. USD/JPY declined to 115.20 after a sharp reversal off 117.50 resistance. It managed to bounce later in the session, but clearly, traders are worried about adding to Dollar long positions at this stage, and the double top at 118.65 suggests further losses could be ahead. A break below 115 support would signal a move back towards 113.

The Euro rose during the Asian session too, but struggled again at 1.0620 resistance, which proved to be too tough. Decent support is now seen in the 1.0500-20 area, while resistance lies at 1.0620, followed by 1.0650.

The British Pound did not benefit from the Dollar’s weakness overnight, but at least managed to stay steady. GBP/USD consolidated in a 1.2135-80 range. On-going concerns about Brexit are likely to prevent any major GBP gains in the near-term.

Politics are coming back into the focus of the markets. Following UK PM May’s comments over the weekend, which pushed the Pound to fresh multi-week lows, traders are looking forward to tomorrow’s press conference by President-elect Donald Trump, which has the potential to rattle the markets.

Australian retail sales

Australian retail sales for November arrived at 0.2 % month-on-month, less than the 0.4 % anticipated by the market, and down from 0.5 % in October. The reaction in the markets was minor. AUD/USD fell from 0.7360 to 0.7340, but quickly bounced from there and eventually reached a fresh session high of 0.7385.

Meanwhile, the Australian weekly consumer confidence survey conducted by ANZ/Roy Morgan arrived at 120.1, up from 113.4 previously.

Chinese CPI and PPI

Inflation data from China showed that the CPI increased 2.1 % year-on-year in December, less than expected by the market (2.2 %), and down from 2.3 % previously. However, the PPI came in stronger than anticipated, at 5.5 % vs. 4.7 % expected, and up from 3.3 % previously. This is due to a rise in commodity prices and the weak Yuan pushing up prices of imports.

Yuan little changed

The Chinese Yuan was relatively stable overnight. The Chinese central bank set today's reference rate at 6.9234, slightly lower than yesterday's fix (6.9262).  USD/CNH (offshore Yuan) opened around 6.8670 in Shanghai and rallied to 6.8960, only to reverse the gains slightly later.

Trades of the Week

A few of the major banks put out their trade of the week recommendations yesterday. US-based Morgan Stanley recommends to short GBPUSD at market, with a 1.23 stop and 1.17 target. Meanwhile, Citibank likes AUD/NZD, and suggests to go long at 1.05, targeting a move to 1.13-1.15 with a 1.02 stop. Finally, the UK bank Barclays recommends to short the Dollar against an equally weighted basket of JPY, EUR and GBP, but suggests traders should not be short the Dollar against AUD, CAD and NZD.

Today’s key events

Not much to get excited about in terms of economic data and events today. The key events are Canadian housing data and US JOLTs Job Openings, although neither of them really tend to move the markets. However, oil traders should keep an eye on the API crude oil inventories numbers, which will be released today at 2130 GMT.

Economic Calendar:

  • 13:15 GMT - Canadian Housing Starts
  • 13:30 GMT – Canadian Building Permits
  • 15:00 GMT - US JOLTs Job Openings

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