Dollar Rises Broadly, But Sustainability in Question

Dollar rises broadly in the early part of European session for now apparent reason. Risk sentiment is so far positive with rallies in major European indexes and US futures. US benchmark yield is actually falling. There is also no follow through buying in the greenback after lower than expected Germany inflation reading. Sustainability of Dollar’s rise should be closely monitored. For now, Yen is the second strongest, followed by Sterling. Kiwi is the worst followed by Aussie. Euro and Canadian are mixed.

Technically, NZD/USD’s fall from 0.6512 resume by breaking through 0.6229 support. Deeper decline is now expected as long as 0.6372 resistance holds, to 38.2% retracement of 0.5511 to 0.6512 at 0.6130. At the same time, some attention would on whether AUD/USD would follow through 0.6628 support.

In Europe, at the time of writing, FTSE is up 1.21%. DAX is up 0.71%. CAC is up 0.45%. Germany 10-year yield is down -0.066 at 2.386. Earlier in Asia, Hong Kong HSI rose 1.84%. China Shanghai SSE rose 0.88%. Singapore Strait Times dropped -0.17%. Japan was still on holiday.

UK PMI manufacturing finalized at 45.3 in Dec, took a further turn for the worse

UK PMI Manufacturing was finalized at 45.3 in December, down from 46.5 in November, a 31-month low. S&P Global noted that production and new orders fell at faster rates, leading to accelerated job losses. Selling price and input cost inflation eased.

Rob Dobson, Director at S&P Global Market Intelligence, said: “The UK manufacturing downturn took a further turn for the worse at the end of the year. Output contracted at one of the quickest rates during the past 14 years, as new order inflows weakened and supply chain issues continued to bite. The decline in new business was worryingly steep, as weak domestic demand was accompanied by a further marked drop in new orders from overseas.

China Caixin PMI manufacturing fell to 49.0, infections expected to explode in short term

China Caixin PMI Manufacturing fell from 49.4 to 49.0 in December, below expectation of 49.3. Caixin added that production declined further albeit at a slower rate. Steeper fall was seen in new orders. But business confidence improved to 10-month high.

Wang Zhe, Senior Economist at Caixin Insight Group said: “Covid outbreaks rapidly spread across China in November, causing a number of macroeconomic indicators to fall sharply and adding to pressure on the economy. On Dec. 7, China announced 10 new measures to further optimize Covid containment. In the short term, infections are expected to explode, which will severely interfere with production and everyday life. How to effectively coordinate Covid controls with economic and social development has once again become a crucial question.”

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2016; (P) 1.2065; (R1) 1.2096; More…

GBP/USD’s decline from 1.2445 resumed today by breaking through 1.1991. Intraday bias is back on the downside. Firm break of 55 day EMA (now at 1.1925 will target 38.2% retracement of 1.0351 to 1.2445 at 1.1645 next. However, strong rebound from 55 day EMA, followed by break of 1.2124 resistance, will argue that the pull back from 1.2445 has completed, and turn bias back to the upside for retesting this high.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1644 resistance turned support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759. Sustained break there will pave the way back to 1.4248. This will remain the favored case as long as 55 day EMA (now at 1.1916) holds.

Economic Indicators Update