Thu, Dec 01, 2022 @ 12:57 GMT
HomeAction InsightMarket OverviewDollar Stays Firm as Hawkish Chorus Continued, Fed Yellen Watched Next

Dollar Stays Firm as Hawkish Chorus Continued, Fed Yellen Watched Next

US equities pared back some gains overnight on profit taking after a strong run. DJIA closed down -112.58 pts, or -0.53%, at 21002.97. S&P 500 dropped -14.04 pts, or -0.59%, to close at 2381.92. Treasury yields, on the other hand, extended the rally with 10 year yield hitting at high as 2.505 before closing at 2.489. 30 year yield hit as high as 3.101 before closing at 3.082. While yields staged a strong rebound this week, it should be noted that both 10 year and 30 year yield are still bounded in medium term range set since December.

Dollar index reached as high as 102.26, extending the rebound from 99.23. The dollar index is now back defending 102 handle. While further rise is expected in the index, it should also be noted that it’s staying well below January’s high at 103.82. In the currency markets, Dollar is set to end the week as the strongest major currencies. However, firm breaks of 1.0493 support in EUR/USD and 114.94 resistance in USD/JPY are still needed to confirm underlying momentum in the greenback.

Fed Powell: Case for hike has "come together"

Speculations on March hike by Fed continued to heat up. Fed fund futures are pricing in 75.3% chance of it, up from prior day’s 66.4, and more than double of last week’s pricing. Fed governor Jerome Powell said yesterday’s that "the case for a rate increase in March has come together." Another Fed governor Lael Brainard, who’s seen as a known dove, also said earlier this week that "Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path". A main focus today is Fed chair Janet Yellen’s speech at 1800 GMT, which could solidify Dollar’s strong weekly close. Fed’s vice Chair Stanley Fischer and Chicago Fed president Charles Evans will also speak today.

Japan CPI ticked up in January

Released from Japan, National CPI core rose to 0.1% yoy in January, up from -0.2% yoy, above expectation of 0.0% yoy. That’s also the first uptick in 11 months. Tokyo CPI core, however, dropped -0.3% yoy in February, unchanged from prior month’s reading, and missed expectation of -0.2% yoy. The jump in National CPI core is seen mostly as a recent of energy prices. There is still no clear evidence of momentum in underlying inflation, including wages. And, the reading is still far below BoJ’s 2% target. It’s difficult for BoJ to start scaling back the massive monetary stimulus any time soon. Unemployment rate dropped 0.1% to 3.0% in January. Household spending dropped -1.2% yoy

Elsewhere, Germany will release retial sales today, while Eurozone will release PMI services final and retail sales. UK will release PMI services. US will release ISM non-manufacturing.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3340; (P) 1.3371; (R1) 1.3419; More

USD/CAD’s rise from 1.2968 continues and reaches as high as 1.3401 so far. As noted before, pull back from 1.3598 has completed at 1.2968 already. Further rise is now expected as long as 1.3209 resistance turned support holds. Firm break of 1.3387 should pave the way to 1.3598 high. Also, break there will extend the larger rally from 1.2460 towards next fibonacci level at 1.3838. On the downside, though, below 1.3209 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
23:30 JPY Jobless Rate Jan 3.00% 3.00% 3.10%
23:30 JPY Household Spending Y/Y Jan -1.20% -0.30% -0.30%
23:30 JPY National CPI Core Y/Y Jan 0.10% 0.00% -0.20%
23:30 JPY Tokyo CPI Core Y/Y Feb -0.30% -0.20% -0.30%
1:45 CNY Caixin PMI Services Feb 52.6 53.1
5:00 JPY Consumer Confidence Feb 43.5 43.2
7:00 EUR German Retail Sales M/M Jan 0.30% -0.90%
8:45 EUR Italy Services PMI Feb 52.8 52.4
8:50 EUR France Services PMI Feb F 56.7 56.7
8:55 EUR Germany Services PMI Feb F 54.4 54.4
9:00 EUR Eurozone Services PMI Feb F 55.6 55.6
9:30 GBP Services PMI Feb 54 54.5
10:00 EUR Eurozone Retail Sales M/M Jan 0.30% -0.30%
15:00 USD ISM Non-Manufacutring Composite Feb 56.5 56.5

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