A very strong day for the dollar against the commodity pairs. We saw a big blowout on the Aussie and the Kiwi but they found support at previous support areas. Forex traders will be watching for NFP numbers tomorrow and then the US interest rate decision next week.
Dean's Daily FX Update – 01 December 2016
In the Zone
- USDJPY
- USDCHF
Noteworthy News
- Lost during the OPEC meetings, the front runners for both Treasury and Commerce Secretary in the form of Mnuchin and Wilbur Ross have been revealed. Look out for comments from these two as it could move the USD.
Recap
As expected, the OPEC meetings is what the caught the eye yesterday, a positive deal seemed to hang in the balance for most of the week. Thus far, 2016 has proved to be a very tough year, there is a definite mind shift in what the average person wants so you could be mistaken if you had some doubts of an OPEC deal. Luckily on this occasion sanity prevailed and a production cut was agreed.
Non-OPEC oi producing countries will meet next weekend, but Russia has already agreed to cut their production and for now it seems as though that meeting will just be a formality. Analysts predict that the oil price could settle at around $ 55 – $ 60, and it ran by over 8% yesterday. Oil is notorious for “cheating” but in in the interim this deal must be welcomed by the market.
The USD soared with the oil price – traditionally there is a negative correlation between the dollar and oil but yesterday was different. Sustained higher oil prices will increase inflation and with inflation come an expectation of higher interest rates, and this was reflected in the sharp increase of bond yields in both the US and Europe. Essentially what this oil production cut did was create an expectation of diverging interest rates around the world – welcome back carry trade!
The EURUSD had done all the hard work yesterday morning getting to a high of 1.0670, but crashing down to 1.0550 on the rampant USD. There was the inevitable bounce which stalled at 1.0605, this coincides with both the 200 and 100 hour moving average. We now have a range set at 1.0605 to 1.0560, we will need to see a break of one of those levels to dictate which way momentum will take this pair.
The GBPUSD was indecisive, whilst the USD bond yields soared, UK traders are still pondering if sterling assets have bottomed out and this was reflected in the price action. As discussed yesterday a clear high has been formed this week at around 1.2530, the encouraging news on this pair is that it seems a base at 1.2440 has been formed. These two levels where both buyers and sellers are comfortble, there is a good battle going on in cable, I think that the 1.2530 level will be tested again this morning – at some point one of these levels will have to break so don’t take a trade with blind faith.
I have been stalking the USDJPY trade for some time now, but today I have decided that the pair has over extended too far past our weekly range and for that reason I am sitting on my hands. This pair had the benefit of the carry trade yesterday and traded as high as 114.85 where it found strong resistance. The trend line since the US election has been sharp, there will be some form of retracement, but I have decided against trying to find the top for now.
The NZDUSD traded in line with everything else yesterday but found some support at 0.7075 which is the 100 Hour moving average. The AUDUSD seems a little bit more vulnerable, it lost over 125 pips yesterday and the relief bounce closed at 0.7401. This level was major resistance last week and failed numerous times, we also have the 200 Hour moving average at 0.7416. I fear for the Aussie, as if it does not have a sustained push above those levels – it could be in trouble this afternoon.
Considering the magnitude of the oil deal yesterday, the USDCAD was rather disappointing. The sheer wall of money flowing into the USD was enough to subdue the CAD. The big level to watch today is 1.3455, we covered this level in last night’s webinar, and for the USDCAD to trace lower it cannot trade lower than this level.
The USDZAR was not spared and the emerging markets were caught in the crossfire. For now it seems as though South Africa may skirt a down grade, higher oil prices will put pressure on our own inflation which will effect both our own interest rates and our growth forecasts. For now, it seems the ZAR is playing catch up and I would not be surprised to see another attempt lower this morning.
Daily FX Ranges 01/12/2016
Majors
EURUSD
Resistance 1.0640 – 1.0660
Support 1.0570 – 1.0550
GBPUSD
Resistance 1.2530 – 1.2550
Support 1.2450 – 1.2420
AUDUSD
Resistance 0.7440 – 0.7460
Support 0.7400– 0.7370
NZDUSD
Resistance 0.7135 – 0.7155
Support 0.7082 – 0.7060
USDCAD
Resistance 1.3440 – 1.3460
Support 1.3360 – 1.3340
USDJPY
Resistance 114.56 – 114.89
Support 113.14 – 113.00
USDCHF
Resistance 1.0170 – 1.0190
Support 1.0126 – 1.0115
Selected FX Pairs
USDZAR
Resistance 14.0500 – 14.1000
Support 13.8900 – 13.8300
AUDCAD
Resistance 1.0040 – 1.0015
Support 0.9905 – 0.9890
EURCHF
Resistance 1.0788 – 1.0796
Support 1.0768 – 1.0759
EURGBP
Resistance 0.8525 – 0.8547
Support 0.8469 – 0.8447
EURJPY
Resistance 120.90 – 121.45
Support 120.15 – 119.85
GBPJPY
Resistance 142.86 – 143.54
Support 141.40 – 140.95
Commodity and Indices
XAUUSD
Resistance 1187.95 – 1192.40
Support 1170.04 – 1164.00
XAGUSD
Resistance 16.65 – 16.78
Support 16.32 – 16.20
DE30
Resistance 10680 – 10740
Support 10538 – 10467
UK100
Resistance 6821 – 6835
Support 6752 – 6723
US500
Resistance 2200 – 2205
Support 2196 – 2190
BRENT
Resistance 53.40 – 53.90
Support 49.98 – 49.50
Important Economic Data out today
- 11:30 GBP Manufacturing PMI
- 15:30 USD Unemployment Claims
- 17:00 USD ISM Manufacturing PMI
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