Sat, Jan 28, 2023 @ 15:53 GMT
HomeAction InsightMarket OverviewEuro Rises But Capped in Range Against Dollar

Euro Rises But Capped in Range Against Dollar

Euro and, to a lesser extent, Sterling, are picking up some buying today but both are stuck in range against the greenback. There is no clear unified theme in the markets. Canadian and Australian Dollar are weak, but New Zealand Dollar is strong. Swiss Franc is trailing other Europeans higher but Yen is heading down, with Dollar.

Technically, to confirm Euro’s strength, EUR/USD will need to break through 1.0594 resistance to resume recent rally from 0.9534 at least. More ideally, EUR/CHF will also have to break through 0.9953 resistance to resume the rise from 0.9407. Otherwise, we’ll stay skeptical about the underlying momentum.

In Europe, at the time of writing, FTSE is up 0.09%. DAX is down -0.32%. CAC is down-0.35%. Germany 10-year yield is down -0.0032 at 1.800. Earlier in Asia, Nikkei dropped -0.72%. Hong Kong HSI dropped -3.22%. China Shanghai SSE dropped -0.40%. Singapore Strait Times dropped -0.83%. Japan 10-year JGB yield rose 0.0022 to 0.255.

WTI oil hits new 2022 low as down trend resumes

WTI oil crude oil extends recent decline and hit the lowest level for the year. Today’s move is part of the selloff in reaction to OPEC+ decision to stick with their existing pace of production cut, rather then raising it. Overall risk sentiment is not helping while China’s easing of pandemic restrictions is largely ignore.

With 74.10 support broke, WTI is resuming whole down trend from 131.82. Further decline is now expected as long as 78.21 minor support holds. Next target is 61.8% projection of 124.12 to 76.61. from 94.25 at 64.88. Break of 78.21 will delay the bearish case, but risk will stays on the downside with 83.82 resistance intact.

BoJ Nakamura: Inflation not accompanied by wage increases yet

BoJ board member Toyoaki Nakamura said, “recent price rises aren’t accompanied by wage increases yet”. He added that Japan is far from the situation where wage inflation spiral becomes a concern. The central bank needs to continue with ultra-loose monetary policy for the time being.

“Tightening monetary policy at a time when demand continues to remain lower than supply would put huge pressure on corporate and household activity,” he warned.

He expects inflation to slow next year as energy and food price rises fade.

Australia AiG services fell to 45.6, deepening contraction

Australia AiG Performance of Services dropped -2.1 pts to 45.6 in November, signaling contraction for a third month. Sales rose 1.5 to 42.8. Employment dropped -6.1 to 47.8. New orders dropped -4.8 to 49.7. Input prices dropped -3.6 to 74.0. Selling prices rose 2.2 to 64.4. Average wages rose 3.8 to 68.6.

Innes Willox, Chief Executive of the national employer association Ai Group, said: “The deteriorating economic outlook is clearly weighing on Australia’s services sector. The Australian PSI indicated a deepening contraction in the services sector, with three months of declining results. Steep falls in indicators for employment and new orders in November reveal weakening demand for services, while ongoing labour shortages continue to constrain the supply side.”

Australia GDP grew 0.6% qoq in Q3, terms of trade deteriorated

Australia GDP grew 0.6% qoq in Q3, below expectation of 0.7% qoq. Household spending rose 1.1%, contributing 0.6% to GDP. Compensation of employees increased 3.2%, the strongest rise since December quarter 2006. Net trade detracted -0.2% from GDP, with a 2.7% increase in exports offset by a 3.9% rise in imports. The terms of trade fell -6.6%, the largest fall since June quarter 2009, as import prices increased and export prices fell.

AUD/NZD extending decline, targets 1.0437

New Zealand Dollar is clearly overwhelming its Australia counter part recently. AUD/NZD’s decline continues on expectation of diverging central bank policy paths, even though tightening is expected to in the early part of next year. While RBNZ’s terminal rate might be 5.50%, 4.00% looks a bit stretch for RBA based on current outlook.

As for AUD/NZD, further decline is expected as long as 1.0657 minor resistance holds. Next near term target is 100% projection of 1.1489 to 1.0883 from 1.1043 at 1.0437. Such development could retrain Aussie’s rebound elsewhere.

EUR/AUD Mid-Day Outlook

Daily Pivots: (S1) 1.5586; (P) 1.5638; (R1) 1.5701; More

EUR/AUD’s break of 1.5704 resistance indicates resumption of whole rise from 1.4281. Intraday bias is back on the upside. Next target is 61.8% projection of 1.4281 to 1.5704 from 1.5271 at 1.6150. For now, near term outlook will remain bullish as long as 1.5271 support holds, in case of retreat.

In the bigger picture, a medium term bottom should be in place at 1.4281, on bullish convergence condition in daily MACD. Further rise would be seen back to 1.6434 key resistance next. Break of 1.5271 support is needed to indicate reversal. Otherwise, further rally will remain in favor.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 AUD AiG Performance of Services Index Nov 45.6 47.7
00:30 AUD GDP Q/Q Q3 0.60% 0.70% 0.90%
03:00 CNY Trade Balance (USD) Nov 69.8B 79.1B 85.2B
03:00 CNY Exports (USD) Y/Y Nov -8.70% -3.50% -0.30%
03:00 CNY Imports (USD) Y/Y Nov -10.60% -6.00% -0.70%
03:00 CNY Trade Balance (CNY) Nov 494B 580B 587B
03:00 CNY Exports (CNY) Y/Y Nov 0.90% 7%
03:00 CNY Imports (CNY) Y/Y Nov -1.10% 4.10% 6.80%
05:00 JPY Leading Economic Index Oct P 99 96.6 97.5
06:45 CHF Unemployment Rate Nov 2.00% 2.10% 2.10%
07:00 EUR Germany Industrial Production M/M Oct -0.10% -0.60% 0.60%
07:45 EUR France Trade Balance (EUR) Oct -12.2B -15.9B -17.5B -17.2B
08:00 CHF Foreign Currency Reserves (CHF) Nov 790B 817B
09:00 EUR Italy Retail Sales M/M Oct -0.40% 0.10% 0.50%
10:00 EUR Eurozone GDP Q/Q Q3 F 0.30% 0.20% 0.20%
10:00 EUR Eurozone Employment Change Q/Q Q3 F 0.30% 0.20% 0.20%
13:30 USD Nonfarm Productivity Q3 0.80% 0.30% 0.30%
13:30 USD Unit Labor Costs Q3 2.40% 3.50% 3.50%
15:00 CAD BoC Interest Rate Decision 4.25% 3.75%
15:30 USD Crude Oil Inventories -3.5M -12.6M

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