EUR/USD: Three sub-plots to the story - SocGen
Kit Juckes, Research Analyst at Societe Generale, explains that in 2015-2016, real yield differentials correlate better than nominal ones and in the last few weeks the Euro has under-performed these as the trend in peripheral spread in European bond markets has once again become important which gives the EUR/USD story three separate subplots this week.“Firstly, the resounding victory of Francois Fillon in the second round of the French Republican Primary installs him as front-runner for the Presidential election next year, with polls suggesting he would win a second round run-off against Marine Le pen. That’s helping the Euro but the focus will now be on the independent candidates who may emerge, in particular Francois Bayrou from the centre-left. If he were to dilute the right-wing vote enough, and the leftwing were to field a credible candidate, M Fillon’s passage to a second round run-off wouldn’t be as clear cut as the polls currently suggest.”“The second sub-plot is the Italian constitutional reform referendum this weekend. BTP/Bund spreads are close to their wides as the implications of a possible ‘no’ votes are debated. New elections are unlikely and the most recent opinion poll suggests only 15% of Italians want to leave the Euro, but the FT warns of the threat of a ‘no’ vote to Italian banks, and there are concerns about implications for the country’s credit rating, too. The third sub-plot is much more mundane but on Friday we can get back to the US labour market. We look for another 165k increase in non-farm-employment, a 4.8% unemployment rate and 2.8% wage growth. Consistent with a December rate hike but a familiar story all the same and one that leaves us thinking that well over 90% of the widening trend in Treasuries/Bunds is already behind us. Further EUR/USD weakness will be much more about European politics than the relative growth trends.”
GBP/USD drops sharply towards 1.24 amid cross-driven weakness
The GBP/USD pair came under fresh selling pressure over the last hour, extending a break below 1.25 handle in a bid to test 10-DMA support located at 1.2430 levels.The cable is seen extending its retreat from more-than one week highs, and now drops sharply towards 1.24 handle, losing almost 100-pips so far this session.The renewed selling-wave in the major is mainly driven by fresh buying seen in the EUR/GBP cross, in wake of month-end flows as the German central bank buys EUR/GBP for its UK EU membership fees.Moreover, resurgent demand for the greenback across the board also drags the GBP/USD pair lower. Meanwhile, the US dollar index jumps to 101.18, having finally broken its range-trade seen near 101 handle.Focus now remains on the US GDP report due tomorrow, followed by Wednesday’s OPEC decision and Thursday’s BOE Financial Stability report and bank stress results for fresh incentives on the spot. In terms of technical levels, upside barriers are lined up at 1.2532 (2-week highs), 1.2600 (round number) and 1.2675 (Nov high). While supports are seen at 1.2393 (50-DMA) and 1.2357 (Nov 23 low) and below that at 1.2308 (Nov 21 low).
USD/JPY extends recovery further beyond 112.00 handle
The USD/JPY pair reversed majority of its early losses to session low level of 111.35 and is now building on to its momentum back above 112.00 handle.Currently trading around 112.15-20 band, the pair initially weakened sharply during early Asian session on Monday as renewed uncertainty over OPEC-deal drove investors to the perceived safety of Japanese Yen. Risk-off mood further amplified US Dollar profit-taking slide from post-US election up-surge to the highest level since mid-March touched on Friday. As the day progressed, recovery in crude oil prices helped improve investor risk-appetite and assisted the pair to extend its recovery move back above 112.00 handle. In fact, WTI crude oil has now reversed all of its early losses and has now managed to move back above $46.00/barrel mark. Investor risk-appetite got an additional boost from the Organization for Economic Cooperation and Development OECD's upgrade of 2017 global GDP forecast from previous 3.2% to 3.3%. However, the prevalent cautious sentiment around European equity markets restricted further upside and the pair remained in bearish territory for the second straight session.Going forward, in absence of any major US economic releases the pair would continue to take clues from the broader market risk sentiment and USD price dynamics, which remains underpinned by growing expectations of tighther Fed monetary policy stance even beyond December meeting."Reversing daily RSI and Slow Stochastic support scenario, which requires close below daily Tenkan-sen line for fresh bearish signal. Next support lies at 110.88 (Fibo 23.6% of 101.17/113.88 rally), clear break of which would trigger bearish acceleration towards psychological 110.00 support . Bounce from 111.34 was so far capped by thick hourly cloud that weighs on near-term structure. Alternative scenario requires bounce and close above 113.00 barrier to signal higher low and shift focus towards 113.88 peak."
USD/CAD tests key 20-DMA support as Oil turns positive
The CAD bulls are seen retaining control amid a recovery in oil prices during the European session, knocking-off USD/CAD near session lows.Currently, the USD/CAD pair is last seen exchanging hands at 1.3471, down -0.32% so far, consolidating the Asian sell-off before the next leg lower. The Loonie benefits from a minor-rebound staged by oil prices, after renewed optimism spread across the markets, with traders now hoping once again that an OPEC output deal will be clinched on Wednesday.According to the latest headlines, as cited by FT sources, Saudi Arabia has offered to cut 4.5% from production levels of 10.5mln BPD, pressurizing Iran and Iraq to accept larger share of production cuts. While Goldman Sachs also noted that an OPEC deal on Nov. 30 looks more likely than before.Moreover, broad based US dollar correction also acts as a drag on the USD/CAD pair. The USD index, which measures greenback’s relative performance against a basket of six major currencies, drops to 101.12, down -0.36% on the day, having faded a spike to 101.20 last hour.To the upside, the next resistances are seen near 1.3523 (daily high) and 1.3566 (Nov 18 high) and from there to 1.3590 (Nov 14 high). To the downside, immediate support might be located at 1.3450 (psychological levels/ Nov 25 low) and below that at 1.3400 (zero figure) and at 1.3374 (Nov 22 low).
EUR/GBP keeps highs near 0.8560 ahead of Draghi
The offered bias around the British Pound has helped EUR/GBP to clinch fresh 3-day tops in the 0.8550/60 band.The European cross is extending its rebound from last week’s multi-week troughs in the mid-0.8400s following a deep pullback in the single currency, in contrast with the persistent resilience surrounding GBP.Later in the session, President Mario Draghi will testify before the Europea Parliament on the economic outlook of the region and the potential consequences following the Brexit vote, along with speeches of board members J.Dickson, P.Praet and B.Coeure.Previously, EMU’s M3 Money Supply has expanded 4.4% on a year to October, while Private Loans rose 1.8% during.In the UK, the BoE’s Financial Stability Report is due on Wednesday followed by November’s manufacturing PMI due on Thursday.The cross is now gaining 0.84% at 0.8561 facing the immediate hurdle at 0.8632 (100-day sma) ahead of 0.8662 (20-day sma) and finally 0.8710 (high Nov.15). On the other hand, a break below 0.8456 (low Nov.23) followed by 0.8329 (low Sep.6) and then 0.8270 (200-day sma).
USD/CHF corrects further below 1.0100 handle
The greenback extended its corrective slide further on Monday, with the USD/CHF pair now sliding below 1.0100 handle.Currently trading at 4-day low, around 1.0085-80 region, the pair moved further away from nearly 10-month high touched in the previous week as investors continue to cash in following the pair's recent up-surge of around 650-pips to 1.0200 neighborhood. A softer tone around European equity markets and uncertainty over the Italian constitutional referendum is driving safe-haven flows towards the Swiss Franc. Moreover, the greenback also paused its post-election up-surge to the highest level since March 2003 and witnessed a corrective slide. In fact, the overall US Dollar Index is now trading with a loss of around 0.6%.Investors now look forward to this week's key US macro releases - revised GDP growth and NFP data, for fresh insights over the Fed's monetary policy stance beyond December meeting. In the meantime, broader market sentiment surrounding the risk-associated space would derive the safe-haven demand and drive the major from current levels. From current levels, 1.0067 (Nov. 22 low) seems to act as immediate support, which if broken could accelerate the slide further towards 1.0015-10 support area before the pair eventually breaks through parity mark and aims to test 0.9960 horizontal support. On the upside, recovery momentum back above 1.0100 handle might now confront resistance near 1.0140 (session peak), which if cleared decisively should assist the pair back towards recent daily closing high resistance near 1.0170 region.
Gold sold-off once again near hourly 100-SMA
Gold failed another attempt to take-out hourly 100-SMA barrier, and now drifts back towards $ 1190 support amid persistent risk-off trades and retreat in the US treasury yields.Currently, Comex gold futures trade +1.11% higher at 1191.50, having reversed a spike to session highs at 1196.50. Gold prices are seen oscillating back and forth in a $ 7 slim range, consolidating sharp moves witnessed in the last Asian session.The bullion moved-off highs as a renewed risk-off wave faded, although the sentiment continues to remain underpinned by the ongoing retreat in the US treasury yields, which makes gold more attractive as an alternative investment asset.Further, gold finds buyers as investors seek to protect their wealth amid OPEC-led uncertainty in the markets, with them remaining wary over an OPEC output cut deal that is expected to reach this Wednesday.Nothing of note for the yellow-metal in the day ahead, and therefore, attention turns towards tomorrow’s US GDP report and Wednesday OPEC meeting for fresh direction.The metal has an immediate resistance at 1200 (key resistance) and 1210 (round figure). Meanwhile, the support stands at 1186.3 0 (5-DMA) below which doors could open for 1177 (multi-month low).
Oil weaker below $46.00 mark, OPEC meeting holds the key
WTI crude oil witnessed a bearish gap opening on Monday, adding on to Friday's steep losses, and broke below $46.00/barrel mark ahead of this week's OPEC meeting in Vienna.Currently trading around $45.60 region, the black gold came under intense selling pressure during opening trade on Monday as Saudi Arabia, the world's largest oil producer and de-facto leader of OPEC cartel, backed out of Monday's OPEC meeting and poured cold water over possibilities of any deal on production cuts/output freeze at Wednesday’s official meeting. However, a broad based US Dollar retracement was seen supporting demand for dollar-denominated commodities and limited further downslide just above $45.00 handle. Adding to this, headlines (via. Reuters) that Algeria and Venezuela will discuss output freeze today, extended additional support to the commodity's recovery from session low. Any recovery attempt might now confront strong resistance near $46.00 handle above which a bout of short-covering could assist the commodity to stage a recovery back towards $46.55-60 resistance ahead of $47.00 handle. On the downside, renewed weakness below $45.35 immediate support might now drag the commodity below session low support near $45.15 region towards testing $45.00 psychological mark support.
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