Thu, Dec 01, 2022 @ 12:59 GMT
HomeAction InsightMarket OverviewStrong Risk Appetite Pushed Stocks to Record, Dollar Strengthened with Hesitation

Strong Risk Appetite Pushed Stocks to Record, Dollar Strengthened with Hesitation

Strong risk appetite boosted US markets to new record highs overnight. DJIA jumped 303.31 pts, or 1.46%, to close at 21115.55. S&P 500 rose 32.32 pts, or 1.37%, to close to 2395.96. NASDAQ also gained 78.59 pts, or 1.35%, to end at 5904.03. All three indices closed at records. Positive sentiments also pulled treasury yields higher with 10 year yield rose 0.105 to close at 2.463 and revived underlying bullishness. Dollar was boosted by increased speculation of March Fed hike as the Dollar index hitting at high at 101.97. The break of 101.76 in the dollar index confirmed resumption of recent rebound from 99.23. However, development in the currency markets doesn’t warrant decisive momentum in the greenback yet. EUR/USD is held above 1.0493 support, AUD/USD above 0.7605 support. USD/CHF is limited below 1.0140 resistance and USD/JPY is held below 114.94 resistance. The strength in the greenback is more apparent in GBP/USD and USD/CAD only. More evidence is needed to confirm bullishness in the greenback.

Fed Brainard: Rate hike appropriate "soon"

Markets continued to raise bet on a rate hike by Fed in March. Fed fund futures are now pricing in 66.4% chance of it, comparing to 65.4% a day ago. Fed governor Lael Brainard said yesterday that "we are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing and risks to the outlook are as close to balanced as they have been in some time." She noted "bear-term risks to the United States from abroad appear to have diminished." And, "recoveries are gaining traction in China, Europe and Japan, in part reflecting greater confidence in their respective policy environments." Hence, "assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path."

Fed Beige Book positive but not overwhelming

Fed released the Beige Book economic report based on information collected from early January through mid February. The reported noted that some district reported "widening labor shortages." At this point, wages only rose "modestly or moderately" though, in general. A few districts reported "some pickup in the pace of wage growth." Meanwhile, "businesses were generally optimistic about the near-term outlook but to a somewhat lesser degree than in the prior report." Overall, all 12 Fed districts reported "modest-to-moderate" growth and inflation cooled a little bit.

BoC on hold

As widely anticipated, BOC kept its monetary policy unchanged with the overnight rate at 0.5%, the Bank rate at 0.75% and the deposit rate at 0.25%. The central bank acknowledged that both global and domestic economic indicators were consistent with its projection of improving growth laid out in January. It also note Canadian growth in 4q16 came in ‘slightly stronger than expected’. However, policymakers maintained a cautious tone noting that ‘material excess capacity’ remained and that the central bank is ‘attentive to the impact of significant uncertainties weighing on the outlook’. Therefore, the risks and slacks in the economy justified leaving the policy rate at exceptionally low level.

On the data front, Japan monetary base rose 21.4% yoy in February. Australia trade surplus narrowed to AUD 1.3b in January, building approvals rose 1.8% mom. Swiss will release GDP and retail sales in European session. Germany will release import price index. UK will release construction PMI. Eurozone will release PPI, CPI and unemployment rate. US will release Challenger job cuts and jobless claims in US session. Canada will release GDP.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3286; (P) 1.3322; (R1) 1.3360; More

Intraday bias in USD/CAD remains on the upside as rebound from 1.2968 continues. As noted before, pull back from 1.3598 has completed at 1.2968 already. Break of 1.3387 will target a test on 1.3598 resistance next. Also, break there will extend the larger rally from 1.2460 towards next fibonacci level at 1.3838. On the downside, though, below 1.3164 minor support will turn bias back to the downside for 1.2968 support instead.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is likely still in progress and could target 61.8% retracement of 1.4689 to 1.2460 at 1.3838. We’d look for reversal signal there to start the third leg. Break of 1.2968 wold at least bring at retest of 1.2460 low. However, sustained trading above 1.3838 would pave the way to retest 1.4689 high.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Monetary Base Y/Y Feb 21.40% 23.20% 22.60%
0:30 AUD Trade Balance (AUD) Jan 1.30B 3.82B 3.51B 3.33B
0:30 AUD Building Approvals M/M Jan 1.80% -0.50% -1.20% -2.50%
6:45 CHF GDP Q/Q Q4 0.40% 0.00%
7:00 EUR German Import Price Index M/M Jan 0.50% 1.90%
8:15 CHF Retail Sales (Real) Y/Y Jan -3.50%
9:30 GBP Construction PMI Feb 52 52.2
10:00 EUR Eurozone PPI M/M Jan 0.60% 0.70%
10:00 EUR Eurozone PPI Y/Y Jan 3.20% 1.60%
10:00 EUR Eurozone Unemployment Rate Jan 9.60% 9.60%
10:00 EUR Eurozone CPI Estimate Y/Y Feb 1.90% 1.80%
10:00 EUR Eurozone CPI – Core Y/Y Feb A 0.90% 0.90%
12:30 USD Challenger Job Cuts Y/Y Feb -38.80%
13:30 CAD GDP M/M Dec 0.30% 0.40%
13:30 USD Initial Jobless Claims (FEB 25) 245k 244k
15:30 USD Natural Gas Storage -89B

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