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Sentiment Lifted by Fed Powell, Dollar Down While Stocks Up
Market are back in full risk-on mode after Fed Chair Jerome Powell affirmed that smaller rate hike would be delivered in December. Positive sentiment continued in Asia with China softening some of its pandemic restrictions. Dollar is in broad based selloff, followed by Canadian Dollar and Swiss Franc. Yen is currently the strongest one, responding more to falling treasury yields. Australian and New Zealand Dollar are the next strongest on positive sentiment and development in China, while Euro trails.
Technically, breaks outs are seen in AUD/USD through 0.6769 resistance and USD/JPY through 137.46 support. Now, focus will be on when EUR/USD will break through 1.0496 resistance, GBP/USD through 1.2152 resistance and USD/CHF through 0.9355 support. Also, break of 1786.83 resistance will resume the rise from 1616.51 to 61.8% projection of 1616.51 to 1786.83 from 1728.43 at 1833.73. If happens, that would be another indication of broad based Dollar weakness.
In Asia, Nikkei rose 1.01%. Hong Kong HSI is up 1.31%. China Shanghai SSE is up 0.56%. Singapore Strait Times is up 0.39%. Japan 10-year JGB yield is up 0.0075 at 0.258. Overnight, DOW rose 2.18%. S&P 500 rose 3.09%. NASDAQ rose 4.41%. 10-year yield dropped -0.045 to 3.703.
Fed Powell: Makes Sense to start slowing, as soon as in Dec
Fed Chair Jerome Powell indicated in a speech that it "makes sense" to start slowing the pace of tightening as soon as in December. But, the level of the terminal rate, and the time to stay there are now more significant than when to start slowing down.
"Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt," Powell said. "Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting," he added.
But Powell also indicated, "the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level. It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done."
BoJ Noguchi: Must maintain monetary easing
BoJ board member Asahi Noguchi said the central bank must continue to maintain monetary easing, keep interest rates at low levels now as achievement of 2% inflation target remains uncertain.
"While not as much as other countries, Japan's consumer prices have risen sharply. This increase is driven mostly by rising imported goods prices," he said. "What's more important in deciding monetary policy is trend inflation based on domestic macro-economic factors, which remains at low levels."
Inflation is likely to fall back below 2% once these cost-push factors dissipate.
China Caixin PMI Manufacturing rose to 49.4 in Nov, pandemic continued to take a toll
China Caixin PMI Manufacturing rose from 49.2 to 49.4 in November, above expectation of 48.6. Caixin said that Covid-19 restrictions continued to constrain output. New orders fell, albeit at softest rate in four months. Supply chain delays worsened.
Wang Zhe, Senior Economist at Caixin Insight Group said: "Overall, the pandemic continued to take a toll on the economy. Output contracted, total demand was under pressure, overseas demand remained weak, employment deteriorated, logistics was sluggish, and manufacturers faced growing operating pressure. As the measure for suppliers' delivery times is negatively correlated to the PMI, the fall in the measure partially offset the drop in the PMI, leading the decline in November manufacturing activity to be underestimated."
Elsewhere
Australia AiG Performance of Manufacturing Index dropped sharply from 49.6 to 44.7 in November. Australia private capital expenditure dropped -0.6% in Q3. Japan PMI Manufacturing was finalized at 49.0 in November. Japan consumer confidence dropped from 29.9 to 28.6 in November.
Looking ahead, Germany retail sales, Swiss retail sales and CPI, Eurozone PMI manufacturing final and unemployment rate, UK PMI manufacturing will be released in European session.
Later in the day, US will release jobless claims, personal income and spending with PCE inflation, ISM manufacturing, and construction spending. Canada will release labor productivity and PMI manufacturing.
AUD/USD Daily Report
Daily Pivots: (S1) 0.6705; (P) 0.6753; (R1) 0.6836; More...
AUD/USD's rally resumed by breaking through 0.6796 and intraday bias is back on the upside. Next target is 0.6871 fibonacci level first. Break there will target 61.8% projection of 0.6271 to 0.6796 from 0.6641 at 0.6965. For now, near term outlook will stay bearish as long as 0.6641 support holds, in case of retreat.
In the bigger picture, a medium term bottom is in place at 0.6160 already. But it's too early to call for trend reversal. Nevertheless, even as a corrective move, rise from 0.6169 should target 38.2% retracement of 0.8006 to 0.6169 at 0.6871. Sustained trading above 55 week EMA (now at 0.6927) will raise the chance of the start of a bullish up trend. This will now remain the favored case as long as 0.6521 resistance turned support holds.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 21:30 | AUD | AiG Performance of Mfg Index Nov | 44.7 | 49.6 | ||
| 00:30 | AUD | Private Capital Expenditure Q3 | -0.60% | 1.20% | -0.30% | |
| 00:30 | JPY | Manufacturing PMI Nov F | 49 | 49.4 | 49.4 | |
| 01:45 | CNY | Caixin Manufacturing PMI Nov | 49.4 | 48.6 | 49.2 | |
| 05:00 | JPY | Consumer Confidence Nov | 28.6 | 30.2 | 29.9 | |
| 07:00 | EUR | Germany Retail Sales M/M Oct | -0.60% | 0.90% | ||
| 07:30 | CHF | Real Retail Sales Y/Y Oct | 3.30% | 3.20% | ||
| 07:30 | CHF | CPI M/M Nov | 0.20% | 0.10% | ||
| 07:30 | CHF | CPI Y/Y Nov | 2.60% | 3.00% | ||
| 08:30 | CHF | Manufacturing PMI Nov | 53 | 54.9 | ||
| 08:45 | EUR | Italy Manufacturing PMI Nov | 47.3 | 46.5 | ||
| 08:50 | EUR | France Manufacturing PMI Nov F | 49.1 | 49.1 | ||
| 08:55 | EUR | Germany Manufacturing PMI Nov F | 46.7 | 46.7 | ||
| 09:00 | EUR | Eurozone Manufacturing PMI Nov F | 47.3 | 47.3 | ||
| 09:30 | GBP | Manufacturing PMI Nov F | 46.2 | 46.2 | ||
| 10:00 | EUR | Eurozone Unemployment Rate Oct | 6.60% | 6.60% | ||
| 12:30 | USD | Challenger Job Cuts Y/Y Nov | 48.30% | |||
| 13:30 | CAD | Labor Productivity Q/Q Q3 | 0.30% | 0.20% | ||
| 13:30 | USD | Personal Income M/M Oct | 0.40% | 0.40% | ||
| 13:30 | USD | Personal Spending Oct | 0.80% | 0.60% | ||
| 13:30 | USD | PCE Price Index M/M Oct | 0.50% | 0.30% | ||
| 13:30 | USD | PCE Price Index Y/Y Oct | 6.20% | 6.20% | ||
| 13:30 | USD | Core PCE Price Index M/M Oct | 0.40% | 0.50% | ||
| 13:30 | USD | Core PCE Price Index Y/Y Oct | 4.80% | 5.10% | ||
| 13:30 | USD | Initial Jobless Claims (Nov 25) | 245K | 240K | ||
| 14:30 | CAD | Manufacturing PMI Nov | 50 | 48.8 | ||
| 14:45 | USD | Manufacturing PMI Nov F | 47.6 | 47.6 | ||
| 15:00 | USD | ISM Manufacturing PMI Nov | 50.5 | 50.2 | ||
| 15:00 | USD | ISM Manufacturing Prices Paid Nov | 47.3 | 46.6 | ||
| 15:00 | USD | ISM Manufacturing Employment Index Nov | 50 | |||
| 15:00 | USD | Construction Spending M/M Oct | -0.10% | 0.20% | ||
| 15:30 | USD | Natural Gas Storage | -82B | -80B |
China Caixin PMI Manufacturing rose to 49.4 in Nov, pandemic continued to take a toll
China Caixin PMI Manufacturing rose from 49.2 to 49.4 in November, above expectation of 48.6. Caixin said that Covid-19 restrictions continued to constrain output. New orders fell, albeit at softest rate in four months. Supply chain delays worsened.
Wang Zhe, Senior Economist at Caixin Insight Group said: "Overall, the pandemic continued to take a toll on the economy. Output contracted, total demand was under pressure, overseas demand remained weak, employment deteriorated, logistics was sluggish, and manufacturers faced growing operating pressure. As the measure for suppliers' delivery times is negatively correlated to the PMI, the fall in the measure partially offset the drop in the PMI, leading the decline in November manufacturing activity to be underestimated."
BoJ Noguchi: Must maintain monetary easing
BoJ board member Asahi Noguchi said the central bank must continue to maintain monetary easing, keep interest rates at low levels now as achievement of 2% inflation target remains uncertain.
"While not as much as other countries, Japan's consumer prices have risen sharply. This increase is driven mostly by rising imported goods prices," he said. "What's more important in deciding monetary policy is trend inflation based on domestic macro-economic factors, which remains at low levels."
Inflation is likely to fall back below 2% once these cost-push factors dissipate.
Fed Powell: Makes Sense to start slowing, as soon as in Dec
Fed Chair Jerome Powell indicated in a speech that it "makes sense" to start slowing the pace of tightening as soon as in December. But, the level of the terminal rate, and the time to stay there are now more significant than when to start slowing down.
"Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt," Powell said. "Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting," he added.
But Powell also indicated, "the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level. It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done."
Technical Outlook and Review
USD/JPY:
The current general bias for USDJPY on the H4 chart is bearish. To add confluence to this, the price is under the Ichimoku cloud which indicates a bearish market. If the bearish momentum continues, expect USDJPY to head towards the 1st support line at 135.004, where the 78.6% Fibonacci line is located. In an alternative scenario, price could go up to retest the 1st resistance line at 138.091, where the 61.8% Fibonacci line and previous low are located.
Areas of consideration:
- H4 time frame, 1st resistance at 138.091
- H4 time frame, 1st support at 135.004
DXY:
On the H4 chart, the overall bias for DXY is bearish. To add confluence to this, the price is crossing below the Ichimoku cloud which indicates a bearish market. If this bearish momentum continues, expect the price to continue heading towards the 1st support line at 104.815, where the previous swing low is. In an alternative scenario, price could head back up and retest the 1st resistance line resistance at 106.396, where the 38.2% Fibonacci line lies.
Areas of consideration:
- H4 time frame, 1st resistance at 106.396
- H4 time frame, 1st support at 104.815
EUR/USD:
Looking at the H4 chart, my overall bias for EURUSD is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. To add confluence to this bias, price has also broken above the ascending trend line. If this bullish momentum continues, expect the price to possibly head towards the 1st resistance at 1.04818, where the previous swing high is located. In an alternate scenario, price could possibly head back down towards the 1st support level at 1.02766, where the 23.6% Fibonacci line is located, before heading towards the 2nd support at 1.00937, where the 50% Fibonacci line is.
Areas of consideration :
- H4 1st resistance at 1.04818
- H4 1st support at 1.02766
- H4 2nd support at 1.00937
GBP/USD:
Looking at the H4 chart, my overall bias for GBPUSD is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. Expecting price to possibly head towards the 1st resistance line at 1.22770, where the previous swing high is. In an alternative scenario, price could possibly head back down to retest the 1st support line at 1.19008, where the 78.6% Fibonacci line is.
Areas of consideration:
- H4 1st resistance at 1.22770
- H4 1st support at 1.19008
USD/CHF:
The overall bias for USDCHF on the H4 chart is bearish. In addition, the price is below the Ichimoku cloud, indicating a bearish market. If the current bearish trend continues, expect price to continue heading towards the 1st support line at 0.93706, where the previous swing low is. In an alternative scenario, price could possibly head back up towards the 1st resistance line at 0.94810 where the 78.6% Fibonacci line is.
Areas of consideration
- H4 1st support at 0.93706
- H4 1st resistance at 0.94810
XAU/USD (GOLD):
Looking at the H4 chart, my overall bias for XAUUSD is bullish due to the current price crossing above the Ichimoku cloud, indicating a bullish market. If this bullish momentum continues, expect the price to possibly continue heading towards the 1st resistance at 1786.545, where the previous swing high is located. In an alternate scenario, price could possibly head back down towards the 1st support level at 1765.050, where the 78.6% Fibonacci line is located.
Areas of consideration:
- H4 time frame, 1st resistance at 1786.545
- H4 time frame, 1st support at 1765.050
AUD/USD:
Looking at the H4 chart, my overall bias for AUDUSD is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. Expecting price to continue heading towards the 1st resistance at 0.69161, where the previous swing high is. In an alternative scenario, price could possibly head back down to retest the 1st support line at 0.67711 where the 61.8% Fibonacci line is.
Areas of consideration
- H4, 1st resistance at 0.69161
- H4, 1st support at 0.67711
NZD/USD:
On the H4 chart, we have a bullish bias with the price moving above the Ichimoku cloud and has broken out of the ascending channel. If this bullish momentum continues, expect the price to head towards the 1st resistance line at 0.63525 where the 88% Fibonacci line is. Alternatively, the price may head back down and retest the 1st support at 0.62092, slightly below where the 78.6% Fibonacci line is
Areas of consideration:
- H4 time frame, 1st resistance at 0.63525
- H4 time frame, 1st support at 0.62092
USD/CAD:
On the H4 chart, the overall bias for USDCAD is bullish. To add confluence to this, the price is above the Ichimoku cloud which indicates a bullish market. If this bullish momentum continues, expect the price to continue heading towards the 1st resistance at 1.35029, where the 38.2% Fibonacci line is. In an alternative scenario, price could head back down to retest the 1st support at 1.33578, where the 20% Fibonacci line is.
Areas of consideration:
- H4 time frame, 1st resistance at 1.35029
- H4 time frame, 1st support at 1.33578
OIL:
Looking at the H4 chart, my overall bias for BCOUSD is bearish due to the current price being below the Ichimoku cloud, indicating a bearish market. If this bearish momentum continues, expect price to possibly break the 1st support at 86.921, where the 127.2% Fibonacci extension line is located. In an alternate scenario, price could possibly head up towards the 1st resistance line at 89.452, where the previous swing low is.
Areas of consideration:
- H4 time frame, 1st resistance at 89.452
- H4 time frame, 1st support at 86.921
Dow Jones Industrial Average:
On the H4 chart, the overall bias for DJI is bullish. To add confluence to this, the price is above the Ichimoku cloud which indicates a bullish market. If this bullish momentum continues, expect the price to continue heading towards the 1st resistance line at 35492.22, where the previous swing high is. In an alternative scenario, price could head back down breaking the 1st support line at 34106.01, where the previous swing high is before heading towards the 2nd support at 32490.37, where the 61.8% Fibonacci line is.
Areas of consideration:
- H4 time frame, 1st support at 34106.01
- H4 time frame, 2nd support at 32490.37
- H4 time frame, 1st Resistance at 35492.22
DAX:
The H4 chart shows a bullish bias, with price breaking through the descending trendline and rising above the Ichimoku cloud. Price is expected to maintain its bullish momentum and rise to the first resistance level at 14709, where the previous swing high is located. Alternatively, the price could fall to the first support level at 13941, where the previous swing high was.
Areas of consideration:
- H4 time frame, 1st resistance is at 14709
- H4 time frame, 1st support is at 13941
ETHUSD:
On the H4 chart, the overall bias for ETHUSD is bearish. However, the price is now above the Ichimoku cloud which might indicate a shift to a bullish market. Expecting price to possibly break the 1st resistance at 1308.21, where the 38.2% Fibonacci line is before heading towards the 2nd resistance line at 1400.48, where the 61.8% Fibonacci line is. In an alternative scenario, price could possibly head back down towards the 1st support at 1071.11, where the previous swing low is.
Areas of consideration:
- H4 time frame, 1st resistance of 1308.21
- H4 time frame, 1st support at 1071.11
BTCUSD:
On the H4 chart, the overall bias for BTCUSD is bearish. However, the price is now above the Ichimoku cloud which might indicate a shift to a bullish market. Expecting price to possibly break the 1st resistance at 17246.66, where the 23.6% Fibonacci line is before heading towards the 2nd resistance line at 18173.33, where the previous swing low is. In an alternative scenario, price could possibly head back down towards the 1st support at 15632.00, where the previous swing low is.
Areas of consideration:
- H4 time frame, 1st resistance 17246.66
- H4 time frame, 1st support at 15632.00
S&P 500:
The overall bias for the S&500 on the H4 chart is bullish, with prices above the Ichimoku cloud. If the bullish momentum continues, expect price to head towards the 1st resistance line is at 4177.51, which is the 78.6% Fibonacci line is. In an alternate scenario, price could return to the 1st support line at 4031.44, where the 61.8% Fibonacci line is located.
Areas of consideration:
- H4 time frame, 1st support at 4031.44
- H4 time frame, 1st resistance at 4177.51
Crude Oil Price Regains Strength, US GDP Revised Higher To 2.9%
Key Highlights
- Crude oil price started a fresh increase above the $78 resistance.
- It broke a major bearish trend line with resistance near $78.75 on the 4-hours chart.
- Gold price started a consolidation phase above the $1,725 support.
- The US ISM Manufacturing Index could drop from 50.2 to 49.8 in Nov 2022.
Crude Oil Price Technical Analysis
Crude oil price started a fresh increase from the $74.00 support zone against the US Dollar. The price gained pace and traded above the $78.00 resistance zone.
Looking at the 4-hours chart of XTI/USD, there was a break above a major bearish trend line with resistance near $78.75. It opened the doors for a move above the $80.00 resistance, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).
The price even cleared the $80.30 swing high and tested the 1.236 Fib extension level of the downward move from the $80.31 swing high to $73.95 low.
On the upside, the price might face sellers near the $82.45 zone. The next major resistance is near $83.00, above which the price could test $85.00 resistance.
A clear move above the $85.00 resistance could open the doors for another steady increase in the coming sessions. An immediate support is now forming near the $80.00 zone.
The next major support is near $79.40 zone. Any more losses might call for a test of the $78.50 support zone or the 100 simple moving average (red, 4-hours).
Looking at gold price, there was a steady increase above the $1,720 and $1,725 resistance. It is now consolidating gains and eyeing more upsides.
Economic Releases to Watch Today
- Germany’s Manufacturing PMI for Nov 2022 - Forecast 46.7, versus 46.7 previous.
- Euro Zone Manufacturing PMI for Nov 2022 – Forecast 47.3, versus 47.3 previous.
- UK Manufacturing PMI for Nov 2022 – Forecast 46.2, versus 46.2 previous.
- US Manufacturing PMI for Nov 2022 – Forecast 47.6, versus 47.6 previous.
- US ISM Manufacturing Index for Nov 2022 – Forecast 49.8, versus 50.2 previous.
- US Initial Jobless Claims - Forecast 235K, versus 240K previous.
CHFJPY Wave Analysis
- CHFJPY reversed from support level 145.20
- Likely to rise to resistance level 148.90
CHFJPY today reversed up from the key support level 145.20 (which has been reversing the price from the end of September).
The support level 145.20 was further strengthened by the lower daily Bollinger Band and by the 38.2% Fibonacci correction of the upward impulse from August.
Given the clear daily uptrend, CHFJPY can be expected to rise further toward the next resistance level 148.90 (top of the earlier waves B and (ii)).
WTI Wave Analysis
- WTI reversed from support level 76.30
- Likely to rise to resistance level 82.90
WTI crude oil earlier reversed up sharply from the major support level 76.30 (which stopped the previous wave (A) at the end of September).
The upward reversal from the support level 76.30 created the daily Japanese candlesticks reversal pattern Morning Star – with the central candle being the Long-legged Doji.
WTI crude oil can be expected to rise further toward the next resistance level 82.90 (target for the completion of the active correction 4).
ADP Warns of a Turning Point in the Labour Market
According to a new ADP report, the US private sector created 127K new jobs in November – the lowest since January 2021 and significantly below expectations (196K) and past data (239K). The accompanying commentary says that the labour market and pay have already begun to be affected by the Fed’s policy tightening, and fewer people are quitting. These are probably signs that people see fewer lucrative job openings.
Although the ADP reports earlier this year methodically turned out to be sharply weaker than the official data and were later revised upwards, this time, they complement the picture that the weekly jobless claims paint. There has been an increase in initial and repeated jobless claims for many weeks, as is often the case before economic cycles turn around.
By sector, manufacturing has fallen by a staggering 100K, while the number of employees in professional services has dropped by 77K. Strong increases have been recorded in leisure/hospitality (224K) and trade (62K).
Today’s labour market data from the ADP should be regarded as a warning signal before the official data release on Friday. According to the market logic of recent weeks, weakness in the data should cause the dollar to weaken, suggesting that the Fed will hike less aggressively and stop at a lower level. However, given the FOMC’s determination to fight inflation expectations, even such data may be needed.
It would probably make sense for investors and traders to take note of the figures but refrain from taking any active steps, at least until the Fed’s position, which may be announced later today by Powell or the Beige Book, has been clarified. But also, there could be a lack of strong market moves up to Friday’s NFP.