Dollar is trading generally higher today and Middle East tensions seem to be out of traders’ mind already, without any new developments. Instead, markets are focusing back on fundamentals and central bank expectations. Thus, Australian and New Zealand Dollars are suffering steep selloff despite return of risk appetite. In particular, traders could be starting to position for an RBA rate cut in February. Canadian Dollar and Yen are the next strongest to Dollar, followed by Euro.

Technically, selloff in Aussie is gathering momentum. AUD/USD’s downside acceleration affirms the case that corrective rise from 0.6670 has completed with three waves up to 0.7031. Break of 0.6838 will add credence to this case and target 0.6754 support for confirmation. EUR/AUD will test 1.6314 resistance very soon. Break will confirm successful defense of 1.58/59 key support zone and maintain medium term bullishness. AUD/CAD breaks 0.8981 support decisively today, confirming completion of corrective rise form 0.8835 at 0.9150. Retest of 0.8835 low should be seen next. AUD/JPY’s corrective rise from 69.95 should have completed at 76.54. Further fall should be seen to 73.82 support to confirm this bearish case.

In Europe, currently, FTSE is up 0.06%. DAX is up 0.78%. CAC is up 0.25%. German 10-year yield is down -0.010 at -0.293. Earlier in Asia, Nikkei rose 1.60%. Hong Kong HSI rose 0.34%. China Shanghai SSE rose 0.69%. Singapore Strait Times rose 0.90%. Japan 10-year JGB yield rose 0.0190 to -0.011.

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US trade deficit narrowed to USD 43.1B, imports from China dropped

US trade deficit narrowed -8.2% mom to USD -43.1B in November, smaller than expectation of USD -44.5B. That also the smallest since October 2016. Exports rose 0.7% mom to USD 208.6B. Imports dropped -1.0% mom to USD 251.7B. With China, trade deficit decreased USD -2.2B to USD 25.6B. Exports increased USD 1.4B to USD 8.9B and imports decreased USD -0.8B to USD 34.5B.

Canada trade deficit narrowed CAD -1.6B to CAD -1.1B in November, slightly larger than expectation of CAD -0.8B. Exports dropped -1.4% mom to CAD 48.7B. Imports also dropped -2.4% mom to CAD 49.8B.

France sets 15 day deadline to resolve digital tax issue with US

French Finance Minister Bruno Le Maire¬†said he set a deadline of 15 days with US to resolve issues regarding digital tax. He said, “I had a long talk with U.S. Treasury Secretary Steven Mnuchin. We have decided to step up efforts to try and find a compromise, within the OECD, on digital tax”. He added,”We gave each other precisely 15 days, until our next meeting, which is planned on the sidelines of Davos at the end of January”.

Le Maire explained that it’s not just an issue between the US and France, as other EU nations were planning their own digital taxes. Also, any international agreement on digital taxation would immediately supersede the French tax. He noted, “this is a more general issue between the United States and Europe.”

Eurozone retail sales rose 1.0% mom, well above expectation

Eurozone retail sales rose 1.0% mom in November, much better than expectation of 0.6% mom. The volume of retail trade increased by 1.4% for non-food products and by 0.7% for food, drinks and tobacco, while automotive fuels decreased by 1.0%.

EU28 retail sales rose 0.6% mom. Among Member States for which data are available, the highest increases in the total retail trade volume were registered in Poland (+3.3%), Belgium (+2.7%) and Latvia (+2.6%). The largest decreases were observed in the United Kingdom (-1.7%), Ireland (-0.9%) and Finland (-0.5%).

Eurozone CPI accelerated to 1.3%, core CPI unchanged at 1.3%

Eurozone CPI accelerated to 1.3% yoy in December, up from 1.0% yoy, matched expectations. CPI core was unchanged at 1.3% yoy, also matched expectations. Looking at some details, food, alcohol & tobacco is expected to have the highest annual rate in December (2.0%, compared with 1.9% in November), followed by services (1.8%, compared with 1.9% in November), non-energy industrial goods (0.4%, stable compared with November) and energy (0.2%, compared with -3.2% in November).

From Swiss, CPI rose 0.0% mom, 0.2% yoy in December, versus expectation of 0.0% mom, 0.0% yoy.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6925; (P) 0.6942; (R1) 0.6958; More…

AUD/USD’s decline from 0.7031 accelerates to as low as 0.6863 so far. Current development argues that corrective rise from 0.6670 has completed with three waves up to 0.7031. Intraday bias stays on the downside at this point. Break of 0.6838 will affirm this bearish case and target 0.6754 structural support for confirmation. On the upside, above 0.6930 minor resistance will dampen this case and turn bias to the upside for retesting 0.7031 resistance.

In the bigger picture, with 0.7082 resistance intact, there is no clear confirmation of trend reversal yet. That is, down trend from 0.8135 (2018 high) is still expect to continue to 0.6008 (2008 low). However, decisive break of 0.7082 will confirm medium term bottoming and bring stronger rally back to 55 month EMA (now at 0.7506).

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Monetary Base Y/Y Dec 3.20% 3.60% 3.30%
07:30 CHF CPI M/M Dec 0.00% 0.00% -0.10%
07:30 CHF CPI Y/Y Dec 0.20% 0.00% -0.10%
10:00 EUR Eurozone CPI Y/Y Dec P 1.30% 1.30% 1.00%
10:00 EUR Eurozone CPI – Core Y/Y Dec P 1.30% 1.30% 1.30%
10:00 EUR Eurozone Retail Sales M/M Nov 1.00% 0.60% -0.60% -0.30%
13:30 CAD International Merchandise Trade (CAD) Nov -1.1B -0.8B -1.1B -1.6B
13:30 USD Trade Balance (USD) Nov -43.1B -44.5B -47.2B -46.9B
15:00 USD ISM Non-Manufacturing PMI Dec 54.5 53.9
15:00 USD Factory Orders M/M Nov 0.20% 0.30%
15:00 CAD Ivey PMI Dec 60.2 60

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