The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 239,000 in October. This reading came in better than the market expectation of 193,000. September print of 208,000 got revised down to 192,000.
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The US Dollar Index showed no immediate reaction to this data and was last seen losing 0.22% on the day at 111.30.
Economist at UOB Group Ho Woei Chen, CFA, comments on the latest interest rate decision by the Bank of Korea (BoK).
“Bank of Korea (BoK) ratcheted up its benchmark base rate by an outsized 50bps to 3.00% in Oct. This was the second time that the central bank had hiked by a 50bps pace following a similar move in Jul. The strengthened policy move was in response to the high inflation as well as sharp depreciation in the won which was seen adding more inflationary pressure through higher imported prices.”
“Despite opting for a larger 50bps hike, BoK’s tone was evidently more downbeat as Governor Rhee Chang-yong flagged weaker growth outlook for the global and South Korean economies.”
EUR/GBP picks up bids to reverse Friday’s losses. Economists at Société Générale expect the pair to extend its race higher on a break past 0.8720.
“EUR/GBP recently gave a break above the descending trend line drawn since 2020 denoting potential upside. This is also highlighted by weekly MACD which is now firmly anchored within positive territory and above its trigger.”
“The pair is close to key graphical resistance of 0.8720. Once this is reclaimed, the up move is likely to extend towards projections of 0.8860 and perhaps even towards 0.8980/0.9010.”
EUR/USD climbed to the proximity of 0.9990 earlier in the session, just to deflate afterwards and return to the 0.9930 region.
Against that, the inability of the pair to regain serious upside traction should keep the door to further retracement open in the near term. Extra losses face the immediate target at the 2022 low at 0.9877 (September 5) seconded by 0.9859 (December 2002 low) and then 0.9685 (October 2002 low).
The continuation of the downtrend remains in the pipeline, as the daily RSI around 36 still allows for some weakness prior to reach the oversold territory.
In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0780.
DXY leaves behind Tuesday’s strong advance and sparked a corrective downside soon after hitting new 3-day peaks in the mid-106.00s on Tuesday.
Tuesday’s bounce did not clear any up barrier of note and thus leaves the index vulnerable to further weakness in the very near term at least. On this, the dollar faces the tangible chance to slip back to the multi-week lows in the 105.00 region (August 2) in the short term. This initial area of contention remains propped up by the proximity of the 55-day SMA, today at 104.84.
Furthermore, the broader bullish view in the dollar remains in place while above the 200-day SMA at 99.62.
DXY navigates the fourth consecutive session with losses and revisits the 105.30 region at the beginning of the week.
The index broke below the multi-session pre-FOMC consolidative theme and in doing so it has paved the way for extra decline in the short-term horizon. That said, the immediate support now turns up at the interim 55-day SMA at 104.75 ahead of the 5-month support line around 103.85.
The near-term outlook for DXY remains constructive while above this 5-month support line near 104.00.
In addition, the broader bullish view remains in place while above the 200-day SMA at 99.49.
The EUR/USD is trading at 1.0220, after hitting a daily high at 1.0254, but later tumbled towards the daily low at 1.0145 on elevated US inflation data. In June, the Personal Consumption Expenditures (PCE) rose by 6.8% YoY, fueling expectations of additional Federal Reserve rate hikes, despite the market's pricing in only 80 bps of tightening.
From a daily chart perspective, the EUR/USD remains neutral-to-downward biased, helped by the 20-day EMA lying below the exchange rate at 1.0167. Nevertheless, the EUR/USD, unable to capitalize on an upbeat market mood, and broad US dollar weakness, keeps the shared currency exposed to further selling pressure. If EUR/USD buyers want to shift the bias to neutral, they must reclaim the May 13 low-turned-resistance at 1.0348. Once cleared, a challenge of the 50-day EMA at 1.0423 is on the cards. On the other hand, if EUR/USD sellers achieve a daily close below 1.0200, that would pave the road towards 1.0096.
UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures in the Malaysian economy.
“Headline inflation breached the 3% level for the first time this year at 3.4% y/y in Jun (from 2.8% in May). It came in higher than ours and Bloomberg consensus of 3.2%. Price pressures broadened with more consumer price index (CPI) components recording larger price increases last month compared to the preceding month, led by food and transport components.”
“We expect CPI growth to jump above 4.0% in 2H22 after averaging 2.5% in 1H22. Our 2H22 inflation outlook largely rests on high commodity prices, year-ago low base effects, persistent currency weakness, changes in some staple food prices (i.e. chicken, eggs and cooking oil), and recovering domestic demand. The new targeted fuel subsidy mechanism, which is currently under pilot testing, will pose upside risks to our inflation outlook should it be implemented over the next few months. As such, our current full-year inflation forecast of 3.0% is subject to upward revision next month when the Jul CPI reading is released (vs. 2.5% in 2021, BNM est: 2.2%-3.2%).”
“The combination of factors including broadening second-round effects on inflation, firmer domestic economic recovery, and diminishing real interest rate gap with US continue to suggest a need for further policy normalisation. We expect Bank Negara Malaysia to deliver another 25bps rate hike at the next MPC meeting on 7-8 Sep, taking the Overnight Policy Rate (OPR) to 2.50%.
Russian President Vladimir Putin said on Monday that the expansion of NATO is a problem and it is in the interests of the USA, reported Reuters. Russia has no problems with Finland and Sweden, he continued, but Russia will react to the expansion of military infrastructure in these countries. Putin added that Russia needs to pay additional attention to NATO plans to increase its global influence.
Finland and Sweden both announced their commitment to applying for NATO membership over the weekend and most NATO nations have come out in support.
US natural gas prices are slightly higher through Asia-Pacific trading after prices dropped over 5% overnight. Currently, the US benchmark is on track to record a monthly loss of around 15%, which would make December the third month of consecutive losses. A warmer-than-expected start to the winter across North America has been the main headwind for prices in recent months.
However, a bout of expected cold temps across the Northern Plains may underpin prices. The National Weather Service’s 8-14 day temperature outlook (NOAA) shows mercury readings will likely dip below the historical averages. Alaska and Southern California are also showing an increased chance for cold weather in early January. Natural gas is heavily relied upon as a heating fuel, making prices highly susceptible to weather trends.
Tonight will see an inventory report cross the wires for the United States for the week ending December 24. The Energy Information Administration (EIA) is expected to report a draw of 128 billion cubic feet (bcf), according to a Bloomberg survey of economists. A larger-than-expected draw may help support prices, especially if the expected cold snap plays out. EIA data shows natural gas stocks are 34 bcf below the five-year average. The unseasonably warm weather so far this winter has helped inventory levels normalize over the past few weeks.
We provide Best Natural Gas Signals with technical and fundamental overview.
Weekly changes: SPX500 +6.20%
The SPX500 climbed to another record level of 3,880 making its best week since November as every major group rose, except the technology group. The number of Non-farm payrolls increased by 49,000. The modest job growth highlighted a persistently difficult outlook for millions of unemployed Americans.
KEY POINTS
Weak economic data on Friday shows the risk that President Biden will push for stimulus without Republican support.
An additional stimulus package contributes to the Fed's accommodative policies, and progress in vaccine distribution will support consumer spending, which makes 70% of the U.S. GDP.
Although stocks in SPX500 continue to grow, they have done so within a very congested price range. The daily chart shows some technical issues, such as negative divergence between the price on one side and the RSI and the MACD on the other side, which may be a signal for a future downwards correction.
