Europe Roundup: Euro slides but EUROSTOXX still edgy, DXY eases as BoJ maintain status quo - Thursday, December 21st, 2017

Market Roundup

• EUR/USD 0.05% up, USD/JPY 0.24% up, GBP/USD up about 0.10%, EUR/GBP down by 0.03% 
• DXY 0.02%, DAX 0.03%, FTSE -0.13%, CAC -0.4%, IBEX -0.3%, Brent -0.48%, Gold -0.05%
• BOJ maintains policy steady as widely expected, comments from BOJ's Kuroda contain no surprises, Dollar supported vs yen after tax bill passed
• The Republican-controlled U.S. House of Representatives gave final approval on Wednesday to the biggest overhaul of the U.S. tax code in 30 years, sending a sweeping bill to President Donald Trump to sign
• European stocks follow Wall Street and Asian bourses lower on Thursday in a muted response to the U.S. Congress's approval of a long-anticipated tax overhaul in the country
• pan-European STOXX 600 index was down 0.3 percent, with all major European bourses and sectors trading in negative territory
• UK (Gfk) consumer confidence, actual -13, forecast -12, previous -12
• France business climate, actual 112, forecast 112, previous 112
• Oil falls as UK North Sea oil pipeline moves closer to restart
• Gold steadies near 2-week high as stocks, dollar retreat

Economic Data Ahead

• (0730 ET/12:30 GMT) US Initial Jobless Claims (mkt 231k, previous 225k)
• (0730 ET/12:30 GMT) US Continued Claims (mkt 1.900 mn, previous 1.886 mn)
• (0730 ET/12:30 GMT) US Real GDP (final Q3) (mkt +3.3% QoQ AR, previous 3.3% QoQ AR)
• (0730 ET/12:30 GMT) US Real Final Sales (final Q3) (mkt +2.5% QoQ AR, previous +2.5% QoQ AR)
• (0730 ET/12:30 GMT) US Core PCE Deflator (final Q3) (mkt +1.4% QoQ AR, previous +1.4% QoQ AR)
• (0730 ET/12:30 GMT) US Philadelphia Fed Manufacturing Index (mkt 21.5, previous 22.7)
• (0730 ET/12:30 GMT) US Chicago Fed National Activity Index (previous +0.65)
• (0800 ET/13:00 GMT) US FHFA House Price Index (previous +6.3% YoY)
• (0830 ET /13:30 GMT) Canadian CPI Inflation MoM (0.2% forecast, 0.1% previous)
• (0830 ET /13:30 GMT) Canadian CPI Inflation YoY (2.0% forecast, 1.4% previous)
• (0830 ET /13:30 GMT) Canadian CPI BoC Core YoY (0.9% previous)
• (0830 ET /13:30 GMT) Canadian CPI BoC Core MoM  (0.3% previousious)
• (0830 ET /13:30 GMT) Canadian CPI (1.7% forecast, 1.6% previous)
• (0830 ET /13:30 GMT) Canadian Retail Sales MoM (Oct) (0.3% forecast, 0.1% previous)
• (0830 ET /13:30 GMT) Canadian Retail Sales Ex-Autos MoM (0.4% forecast, 0.3% previous)
• 0900 ET /14:00 GMT) US Leading Economic Indicators Index (mkt +0.2% MoM, previous +1.2% MoM)

Key Events Ahead

• (1045 ET /15:45 GMT) FedTrade operation 30-year Fannie Mae / Freddie Mac (max $1.63 bn)

FX Beat

DXY: Major trend line resistance- 94 (trend line joining 102.97 and 101.26)

DXY is trading within the channel for the past 1-1/2 month. It has formed a bottom around 91.02 and shown a minor jump until 95.15 Nov 7th 2017. It is currently trading around 93.45.

Technically the pair has broken major support 93.40 and declined till 93.16. Any daily close below 100- day MA at 93.32 will drag the pair till 92.90 (trend line joining 91 and 92.50)92.

The huge jump on the higher side is possible only above trend line resistance at 94.05. The index should close on a daily basis above 94.05 for further jump till 95.15. Short-term trend reversal only above 95.25 (38.2% retracement) and any violation above will take the pair to 96/97.50.

EUR/USD: The pair jumped almost 70 pips from the low of 1.18290 and trading near 3- week high. The pair was trading flat as Catalonia votes. US Senate passed the major tax reform yesterday and Donald Trump will sign tax bill into law. The pair jumped till 1.19018 yesterday and is currently trading around 1.18788.

Catalonia voting has started with separatist versus unionist running neck to neck. The first exit poll is expected around 19.00 GMT. Market awaits US GDP, Philly fed manufacturing and jobless claim data to be released for further direction.

Technically, the pair is facing strong resistance at 1.19612 (Nov 27th 2017 high) and any minor bullishness can be seen only above that level. Any convincing break above 1.19612 will take the pair to next level until 1.2000/1.2090.

On the lower side, major support is around 1.1800 and any break below will drag the pair to next level until 1.1745/1.1700. The minor support is around 1.1835.

USD/JPY: This pair has shown a good recovery from the minor bottom at 112.03. The pair jumped till 113.45 yesterday and is currently trading around 113.41.

BOJ has kept its interest rates unchanged at -0.1% and 10 Year JGB target at 0%. The central bank will continue to buy and the annual amount of JPY 80T JGBs. BOJ said in a statement that “Japan’s economy is expanding moderately and likelihood of inflation reaching 2% target is very low.  

Technically, near-term major resistance is around 113.48 (trend line joining 114.73 and 113.75) and any break above will take the pair to next level until 114/114.73/115.

On the lower side, near-term support is around 112.74 (4H Kijun-Sen) and any break below will drag the pair to next level until 112/111.40.

GBP/USD: Cable is trading very flat for the past one week. The UK and EU have reached the deal for the first phase on Friday and next phase on trade negotiations is expected to happen next week. The pair has recovered almost 100 pips from the low of 1.33029 made on Dec 15th 2017 and is currently trading around 1.3380.

UK government next parliamentary debate on Brexit is to be held on Jan 16th and 17th. UK Nov public sector net borrowings came at £8.1 bn vs £8.9 bn.

On the lower side, near-term support is around 1.3300 and any break below will drag the pair to next level until 1.3225/1.3175. Short term bullish invalidation only below 1.30280.

The near-term resistance is around 1.3420 (trend line joining 1.35204 and 1.34654) and any break above will take the pair to next level until 1.3470/1.3520. Bullish continuation only above 1.3550.

USD/CHF: USD/CHF was trading flat and shown a minor recovery from the low of 0.98286. The pair is consolidating below 78.6% retracement at 0.9975. The pair was trading low due to the slight weakness in US dollar index.  US house passed Republican’s tax yesterday 227 to 203 and Donald Trump is now expected to sign tax bill into law. The pair hits high of 0.98715 yesterday and is currently trading around 0.98655

Market awaits major economic data such as US GDP, Philly Fed manufacturing and US jobless claims to be released today for further direction.

On the higher side, near-term resistance is around 0.99220 (trend line joining 0.9977 and 0.99345) and any break above will take the pair to next level till 0.9977 (Dec 8th 2017 high)/1.000. It should break above 1.0040 for short-term bullishness.

The near-term support is around 0.9835 and any violation below that level will drag the pair to next level till 0.9810 (200 – day EMA)/0.9770/0.9735.

AUD/USD: Aussie dollar is consolidating after hitting high of 0.76946 on Dec 15th 2017. The pair is trading flat only 40 pips for the past three trading session. It is currently trading around 0.766635 0.15% higher. On the lower side, the pair’s near-term support is around 0.7500 and any convincing break below will drag the pair till 0.7435/0.7380. The near-term support is around 0.76788.

The pair’s near-term resistance is around 0.7681 (233- day MA) and any convincing break above targets 0.7730/0.7780.

Equities Recap

The pan-European STOXX 600 index was down 0.3 percent, with all major European bourses and sectors trading in negative territory.

Spain's IBEX was down 0.3 percent but slightly better than the Paris CAC 40, down 0.4 percent, as the Spanish government hopes a regional election will strip pro-independence parties of their control of the Catalan parliament. 

Britain's FTSE 100 trades up about 0.27 pct at 7,545.48 points on bouncing back after heavy losses in the previous session due to resurfacing political worries, Germany's DAX eased 0.3 pct at 13,190.20 points; France's CAC40 trades 0.31 pct down at 5,366.36 points.

S&P 500 SPX, -0.07% and Dow average DJIA, -0.10% both ended 0.1% lower and the Nasdaq Composite Index COMP, -0.03% fell 0.03%.

Commodities Recap:

Energy: Crude oil price Oil prices were stable on Thursday, supported by falling crude inventories in the United States but capped by output that is fast approaching 10 million barrels per day, a level only surpassed by Saudi Arabia and Russia.

U.S. West Texas Intermediate (WTI) crude futures were at $58.16 a barrel at 0756 GMT, up 7 cents from their last settlement.

Brent crude futures, the international benchmark for oil prices, were up 6 cents at $64.54 a barrel. The U.S. crude output highest since the 1970s, but crude stocks fall

• U.S. output close to that of top producers Russia, Saudi Arabia
• Saudi Arabia says it will take more time to re-balance markets

Crude oil prices edged up, extending previous session gains, as the Forties pipeline outage in the North Sea and OPEC-led supply cuts supported prices. The energy minister of Saudi Arabia, the world's top crude exporter and OPEC's de-facto leader, said it would take more time to rein in a global supply overhang, which was created by strong global production increases in the years up to 2015.

Precious metals:

Bullion prices

• Spot gold resistance at 200-day moving avg around $1,269 -trader
• Dollar up vs yen after BOJ keeps policy steady
• Asian shares show muted reaction to U.S. tax cuts

Gold prices trading in a narrow range inched higher to $1,268.13 but remained in the range of $1,268.13 and $1,264.21 on Thursday. While Silver futures on the Comex were down 0.22% at $16.24 a troy ounce.

The weakness in the gold price is majorly due to the strength of the dollar. A rise in U.S. bond yields from optimism after lawmakers in the United States approved the biggest overhaul of the country's tax code in 30 years, also offered support to the greenback. Rising bond yields tend to boost the dollar and weigh on the appeal of non-interest bearing gold.

Platinum was 0.5 percent lower at $913.50 an ounce, after marking its best since Dec.5th in the previous session.

Palladium gained 0.2 percent to $1,027.57.

Treasuries Recap

The U.S. Treasuries remained flat Thursday as investors wait to watch the country’s third-quarter gross domestic product (GDP), scheduled to be released today at 13:30GMT and it is expected to remain unchanged at 3.3 percent. Besides, the initial jobless claims and a host of other economic data through the latter half of the day will add further direction to the debt market. The yield on the benchmark 10-year Treasuries hovered around 2.49 percent, the super-long 30-year bond yields nearly steadies at 2.87 percent while the yield on the short-term 2-year traded flat at 1.86 percent.

The UK gilts plunged Thursday despite Brexit uncertainties looming high, with high inflation and stagnating wage growth stretching household budgets, and recent data suggesting a more adverse shift in labor market dynamics, there’s no shortage of factors for consumers to worry about. The yield on the benchmark 10-year gilts, jumped nearly 3 basis points to 1.28 percent, the super-long 30-year bond yields climbed 2-1/2 basis points to 1.84 percent and the yield on the short-term 2-year traded 2 basis points higher at 0.49 percent.

The German bunds slumped Thursday in a silent trading session that witnessed data of little economic significance. The German 10-year bond yields, which move inversely to its price, rose nearly 1-1/2 basis points to 0.38 percent, the yield on the 30-year note climbed 1-1/2 basis points to 1.25 percent and the yield on short-term 2-year also traded 1-1/2 basis points higher at -0.65 percent.

New Zealand government bonds slumped at the time of closing Thursday after the country’s September quarter GDP was stronger than what market had expected, but that was almost an incidental detail in today’s release. Stats NZ’s annual benchmarking of the national accounts has led to some major upward revisions to the reported rate of growth over the last few years. At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 2 basis points to 2.77 percent, the yield on 20-year climbed 1-1/2 basis points to 3.31 percent while the yield on short-term 2-year ended 1 basis point lower at 1.91 percent.

Japanese government bonds (JGBs) slumped on Thursday as the U.S. Treasury yields hit a 9-month high after House gives final approval to a sweeping tax overhaul. On the contrary, the Bank of Japan’s status-quo limited the growth in bond yields. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, climbed 1 basis point to 0.060 percent, the yield on new long-term 40-year also rose nearly 1 basis point to 0.971 percent and the yield on short-term 2-year gained 1/2 basis point at -0.140 percent.

Australian government bonds slipped on Thursday as the U.S. Treasury yields rose to 9-month highs on optimism over U.S. tax cut, which would help boost growth and other economic data. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 2 basis points to 2.667 percent, the yield on the long-term 30-year note surged over 3 basis points to 3.397 percent and the yield on short-term 2-year climbed 1-1/2 basis points to 1.981 percent.