Market Roundup
- EUR/USD choppy in relatively tight 1.0970/1.0927 range.
- GBP/USD slips back from 1.5168 to 1.5125. 1.5200 was Thursday peak.
- USD/ZAR hits 16.0485 high as domestic woes impact.
- UK inflation expectations for year ahead 2.0% in Nov vs 2.0% in Aug.
- BOE survey: Public expects rate rise in next 12 months at 2-year low if 35% Nov. 50% Aug.
- UK Oct Construction Output 1.0% y/y, 0.2% m/m vs previous -0.3%/0.0%. -0.9%/1.0% expected.
- Germany Nov CPI final 0.1% m/m, 0.4% y/y vs previous 0.1%/0.4%. 0.1%/0.4% expected.
- ECB Coeure: Asset purchase programme flexible, can be adjusted if necessary.
- Coeure: Risk of deflation now "of the table".
- IEA sees oil glut worsening as demand growth slows.
- China Yuan closes down 0.8% for week to 6.4552, biggest weekly loss since Aug devaluation.
- CBR holds key rate at 11%, as expected.
Economic Data Preview
- (0830 ET/1330 GMT) U.S. retail sales likely rose 0.3 percent in November, after rising 0.1 percent in October, which could ease concerns about tepid consumer spending in the fourth quarter, accoding to a survey of economists. Core retail sales likely increased 0.4 percent, after advancing 0.2 percent in October.
- (0830 ET/1330 GMT) U.S. Producer prices index likely dropped by 1.4 percent in the 12 months through November, compared with its previous month's 1.6 percent decline. November's decline will mark the tenth straight 12-month decrease in the index.
- (0900 ET/1400 GMT) Mexican industrial output is likely to have expanded 0.25 percent in October, but at a slower pace than the prior month. It rose 0.40 percent in September.
- (1000 ET/1500 GMT) U.S. business inventories in October are expected to have inched up by 0.1 percent, after they surprisingly rose by 0.3 percent in September.
- (1000 ET/1500 GMT) Market analysts expect the University of Michigan's preliminary consumer sentiment index to increase to 92.0 in December.
- Peru's central bank is likely to surprise the market by raising its benchmark interest rate by 25 basis points to 3.75 percent in December.
Key Events Ahead
- (1035 ET/1535 GMT) BoE MPC Member Weale Speech.
- (1045ET/1545 GMT) FedTrade Operation 30-Year Fannie Mae / Freddie Mac (max $2.025 bn).
FX Beat
USD: The dollar index edged down slightly. It was on track to record a weekly loss of about 0.5 percent after investors trimmed dollar-long positions before the Fed meeting. The dollar was up 0.3 percent at 121.99 yen but was still on track for a 1 percent weekly loss versus the yen.
USD/CNY: China's yuan plunged to its weakest in 4-1/2 years at 6.4564 per dollar and recorded its longest weekly losing streak in a decade, driving emerging Asian currencies lower, on concerns about its slowing economy and expectations of a U.S. rate hike next week. The yuan was 0.7 percent weaker offshore at 6.5373 per dollar, following a 0.3 percent weakening of the onshore rate to 6.4538.
EUR/USD: The euro edged up about 0.2 percent to $1.0965, after comments from the ECB's Ewald Nowotny this week raised doubts about the extent to which U.S. and European monetary policy will diverge. It was still poised to end the week with a 0.7 percent gain. The pair has made a low of 1.09257 after making a high of 1.10420 and was trading around 1.09390. Overall trend is still weak as long as resistance 1.10450 holds. Any break above 1.10450 will take the pair till 1.1070/1.1090 level. On the lower side major support is around 1.0900 and break below will drag it further down till 1.0830/1.07850 level.
USD/JPY: The pair has recovered slightly after making a low of 121.07 level and was trading around 121.65. Intraday trend is still weak as long as resistance 122.25 holds. On the higher side minor intraday resistance is around 122.25 and any break above targets 122.50/122.90. Minor support is at 121 and break below targets 120.60/120.
GBP/USD: Sterling slipped on Friday, a day after the Bank of England voted to keep interest rates at their record lows and said nothing to bring forward expectations that UK rates will not rise until late next year. It edged 0.2 percent lower at $1.5137, but was slightly up on the week. The pair's major intraday resistance is around 1.5190 and any break above 1.5190 will take it to next level 1.5220/1.5250/1.5280 level. On the lower side support is around 1.5100 and break below will drag the pair further down till 1.5050/1.5000 level. Against the euro, the pound was also down 0.2 percent at 72.305 pence.
USD/CHF: The pair has retreated after making a high of 0.99079 and was trading around 0.98827. Major intraday resistance is around 0.9926 and break higher will take the pair to next level around 0.99387/0.9957. Overall bearish invalidation is only above 1.00350 level. On the other hand break below 0.9840 will drag down the pair further lower till 0.9820/09798 (61.8% retracement of 0.9476 and 1.03280).
AUD/USD: The Australian dollar slid after attempts to keep above key levels proved difficult and prompted investors to book profits. It dropped to $0.7263, from$0.7289 early, pulling away from a peak and a major retracement level of $0.7335 touched on Thursday. It rallied more than 1 percent in the last session followinga strong domestic job report. Support was found at $0.7235. Short term trend is bullish as long as support 0.7170 holds. The pair's major intraday resistance is around 0.7280 and break above targets 0.7350/0.7380. On the lower side major support is around 0.7170 and any break below will target 0.7150/0.7100. The euro gained 1.6 percent against the Aussie so far this week, having jumped 7 cents since early December.
NZD/USD: The New Zealand dollar dropped to $0.6738, but was still holding strong after the RBNZ cut rates by 25 bps to 2.50 percent Thursday but indicated it was ready to pause.
Equities Recap
World stocks were near a 2-month low on Friday as oil prices hit 7-year low and China's yuan dropped to 4-1/2 year lows.
European shares dropped 0.7 pct, dropping for a fourth consecutive session, while MSCI's world stock index dropped for a fifth straight day, Germany's DAX slipped 0.2 pct, UK's FTSE fell 0.3 pct and France's CAC dipped 0.5 pct.
Japan's Nikkei closed up 0.97 pct at 19,230.48. MSCI's broadest index of Asia-Pacific shares outside Japan fell to 2-month low 3 pct. Chinese shares ended lower ahead of a spate of economic data scheduled to be released on Saturday, HK's Hang Seng Index ended down 1.1 pct at 21,464.05 points and Shanghai Composite Index finished down 0.6 pct at 3,434.58 points.
Emerging market stocks were down for an eighth day running and on course for their worst week since September.
Commodities Recap
Crude oil prices stayed at lowest levels since 2009, as the output in Middle East continued to rise despite an oversupply. Brent crude futures dropped 48 cents to $39.25 per barrel, not so far from the $39.17 per barrel level of 2009. US crude futures were down 34 cents to $36.42 per barrel.
Gold prices dropped and were moving towards a seventh weekly drop in 8 weeks, as investors positioned for US Fed's rate hike. Spot gold plunged 0.2 pct to $1069.50 per troy ounce, after ending last two sessions flat.
Treasuries Recap
US 10-year Treasury yield stood at 2.235 pct versus US close of 2.238 pct on Thursday.
German bond yields are set to post their biggest weekly drop in 4 weeks, with an oil price dip leading the borrowing costs sharply lower again after disappointment from ECB last Thursday. 10-year yields fell 12 bps to 0.56 pct this week, remaining above the 0.48 pct level seen before the ECB meeting on December 3.
JGB prices closed the day mixed, with the 20s/40s curve flattening moderately by 1bp on the day.
UK Gilts started 8 ticks lower than the settlement of 117.49as there was reaction from the market to an overnight bounce in Asian equities. 10-year cash is in the middle of a 1.853% to 1.883% range.
New Zealand government bonds dropped, sending yields 5 bps higher at the short end and 4.5 bps higher at the long end. Australian government bond futures were softer, with the 3-year bond contract shedding 1 tick at 97.800. The 10-year contract lost 3.25 ticks to 97.0850, while the 20-year contract was 3 ticks off to 96.5725.
