Market Analysis: North America Session – Dec 04, 2015


The dollar, after baring the brunt of euro buying yesterday, traded moderately higher into today’s U.S. jobs report. EUR-USD logged a low at 1.0855 well-off yesterday’s post-ECB 1.0981 peak. The November U.S. payrolls report has make-or-break potential with regard to cementing expectations for the Fed to hike rates on Dec-16, though it would take a significant miss, along with big downward revisions to prior months, to deter the Federal Reserve from hiking at this stage. On the other side of the coin, strong data would shape expectations for Fed policy beyond the expected mid-December quarter point hike. EUR-USD resistance is at 1.0981 and 1.1000. The 50-day moving average, presently at 1.0978, and which was left untroubled yesterday (when it was situated at 1.0983)), is also a level of note. Near-term support is at 1.0858. We favour the downside.

The euro market is still fathoming yesterday’s drama. Forex analysts at banks have been busily revising their euro calls. Barclays has now pulled its euro sell recommendation, for instance, while Goldman Sachs, having called for a 300 pip dive in EUR-USD before the ECB announcement, is now talking about “declining inflation break-evens and rising nominal yields” — i.e. rising real yields — as being euro positive. However, ECB vice president Constancio said of yesterday’s volatility: “The markets got it wrong in forming their expectations. They did indeed have higher expectations than were there and that’s why they reacted like they reacted but that was not our intention.” Into the mix will shortly come the U.S. November employment report, where strong data could send EUR-USD tumbling. The euro eked out a fresh correction low, at 1.0855 against the dollar, and the pair was showing a 0.8% decline on the day, as of the late European AM session. This follows yesterday’s gargantuan 3.5%-plus rally.

USD-JPY continues to oscillate around the 123.00 level, dipping south of here in the latest phase. Yesterday’s low was at 122.29, which left last week’s 122.26 untroubled with the dollar subsequently recouping to the upper 122s. The drop yesterday came as the dollar took the brunt of the ECB-induced euro surge, though today is a different matter and the November U.S. jobs report should both cement a Dec-16 Fed rate hike and return a better underpinning to the greenback. Initial resistance is at 122.92 (20-day moving average). Support is at 122.26-29, which marks recent lows.

Sterling has been mixed against the dollar and euro over the last day. Cable has been restored to the 1.5100 area, well up on yesterday’s intraday low at 1.4906 and Wednesday’s nadir at 1.4895, which is the lowest level traded since April. Above-forecast November services PMI data out of the UK came to the rescue following disappointing construction and manufacturing PMI surveys this week. The quid, meanwhile, is trading at its lowest levels against the euro since late October.

EUR-CHF has seen whippy trade over the last day following the ECB’s under delivery of easing relative to market expectations. A low at 1.0794 was followed by a seven-week peak at a 1.0939. The cross has subsequently settled back to familiar territory around the mid 1.0800s. We recommend a long USD-CHF position. Today’s U.S. payrolls report should cement expectations for a Dec-16 rate hike from the Fed, while a short franc strategy has merits, with Swiss deposit rates at -0.75% and with the Swiss 10-year government bond yields hitting record lows under 0.44% this week.

USD-CAD logged a one-week low at 1.3293 yesterday before recouping to the mid-1.33s. There have been a variety of mixed forces affecting the pair, leaving it near to net unchanged on the week. Yesterday’s decline came as the U.S. dollar took the brunt of euro buying following the ECB’s under delivery of easing. The 20-day moving average, presently sitting at 1.3321, was breached for first time since Nov-4, though losses below here weren’t sustained. Before this, the BoC delivered a less dovish statement this week after leaving its key interest rate unchanged at 0.5%, citing “complex” global and Canadian growth dynamics. Oil prices, meanwhile, are trading firmer up on news that Saudi is looking to propose a supply cut at the Open meeting in Vienna today. Today’s U.S. payrolls data is likely to cement expectations fort the Fed to hike rates at the Dec-16 FOMC. Key support is at 1.3246 (Nov-19 low). On the upside, USD-CAD’s 12-year at 1.3457 provides the main reference point.

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