US jobless claims rose to 214k, Philly Fed business outlook dropped to 9.4

US initial jobless claims rose 8k to 214k in the week ended December 15, below expectation of 219k. Four-week moving average of initial claims dropped -2.75k to 222k.

Continuing claims rose 27k to 1.688M in the week ended December 8. Four-week moving average of continuing claims rose 6.75k to 1.6725M.

Also released Philly Fed business outlook dropped sharply to 9.4 in December, down from 12.9 and missed expectation of 15.6. That's also the lowest level since August 2016.

Canadian Dollar Higher, Investors Eye US Jobless Claims

USD/CAD is down slightly in the Thursday session. Currently, the pair is trading at 1.3470, down 0.07% on the day. On the release front, Canadian Wholesale Sales are expected to post a gain of 0.4% after two straight declines. Canada will also release ADP nonfarm payrolls, which declined by 23.0 thousand last week. In the U.S., the Philly Fed Manufacturing Index is expected to rise to 15.1, while jobless claims are forecast to increase to 216 thousand. On Friday, there are key events on both sides of the border. Canada releases GDP and retail sales, while the U.S. will publish Final GDP, durable goods orders and consumer confidence.

The Federal Reserve delivered the goods as far as a rate hike, marking the fourth rate hike of the year. The benchmark rate is currently in a range between 2.25 and 250 percent. However, the U.S dollar is broadly lower on Thursday, as the markets had expected a more dovish message in the rate statement. There was speculation that the Fed would “compensate” investors with a very dovish statement, given that the markets have been in turmoil for weeks and the U.S. economy appears to be cooling down. However, the Fed seems bent on continuing to raise rates in 2019 – most significantly, policymakers did not remove the critical phrase “further gradual increases” from their statement. At the same time, the dot plot forecast was lowered for 2019, from three rate rises to two. This marks a U-turn for the Fed, as back in October, Fed Chair Jerome Powell talked about continuing to raise rates until the “neutral rate” range was met. This range has been somewhat unclear, allowing Powell to say on Thursday that the “lower end” of the range has been achieved.

Just a few months ago, the markets were predicting a “rate hike every quarter” for 2019, but such heady talk has disappeared, as Fed policymakers have responded to economic data which is pointing to slower growth. The policy of gradual rate hikes bears much of the responsibility for the volatility in the equity markets, and the message from the Fed that more hikes are coming will likely mean that the volatility will continue in December and into the New Year. This will likely translate into volatility for the Canadian currency, which is sensitive to the level of risk appetite on the part of investors.

EURGBP Moves Slightly Higher, Remaining above SMAs

EURGBP has been edging higher since Wednesday’s session, remaining above the strong support level of 0.8940. The technical structure endorses the short-term bullish sentiment as the RSI is heading towards the overbought level and the MACD oscillator created a positive crossover with the trigger line above the zero line. Also, the moving averages are pointing upwards in the daily timeframe.

A further upside run in the price may retest the previous peak of the three-month high of 0.9085 before targeting the one-year high of 0.9100. Above that, investors would be interested to see whether bullish dynamics can overcome the previous peak and meet the 0.9300 psychological hurdle.

Alternatively, a decline in the price may retest the 0.8940 support barrier, which coincides with the 20-simple moving average (SMA), before challenging the 40-SMA around 0.8872 at the time of writing. More downside pressures could send prices until the 0.8810 hurdle, identified by the bottom on November 28.

To conclude, the short-term outlook is bullish, however, in the long-term picture the price lacks direction.

EURUSD Sees Bullish Offensive On Price Rally

EURUSD sees bullish offensive on rally with more strength expected in the days ahead. Support lies at the 1.1400 where a violation will aim at the 1.1350 level. A break below here will aim at the 1.1300 level. Further down, support lies at the 1.1250. On the upside, resistance resides at 1.1500 level with a break through there opening the door for further upside towards the 1.1550 level. Further up, resistance comes in at the 1.1600 level where a violation will expose the 1.1650 level. Its daily RSI is bullish and pointing higher suggesting more strength. All in all, EURUSD continues to threaten further recovery on rally.

BoE keeps Bank Rate unchanged at 0.75%, Brexit uncertainties have intensified considerably, full statement

BoE left Bank Rate unchanged at 0.75% as widely expected. Asset purchase target is also held at GBP 435B. Both decisions are made with unanimous vote.

The overall tone of the statement is rather dovish. Firstly it noted that "near-term outlook for global growth has softened and downside risks to growth have increased" since last meeting. With significant decline in oil prices, UK CPI is "likely to fall below 2% in coming months. Though, loosening of fiscal policy in Budget 2018 will boost GDP by the end of the forecast period by 0.3%.

Secondly, BoE said "Brexit uncertainties have intensified considerably". And, the "further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth."

But BoE emphasized that Brexit uncertainties would lead to "greater-than-usual short-term volatility in UK data". The MPC would look through these short term developments, from "the dynamics of the economy once greater clarity emerges about the nature of EU withdrawal."

BoE also reiterated that he broader economic outlook will "depend significantly on the nature of EU withdrawal". And, "the monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction".

Full statement below.

Bank Rate maintained at 0.75%

Our Monetary Policy Committee has voted unanimously to maintain Bank Rate at 0.75%. The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 19 December 2018, the MPC voted unanimously to maintain Bank Rate at 0.75%.

The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

Since the MPC's previous meeting, the near-term outlook for global growth has softened and downside risks to growth have increased. Global financial conditions have tightened noticeably, particularly in corporate credit markets. Oil prices have fallen significantly, however, which should provide some support to demand in advanced economies. The decline in oil prices also means that UK CPI inflation is likely to fall below 2% in coming months. The Committee judges that the loosening of fiscal policy in Budget 2018, announced after the November Inflation Report projections were finalised, will boost UK GDP by the end of the MPC's forecast period by around 0.3%, all else equal.

Brexit uncertainties have intensified considerably since the Committee's last meeting. These uncertainties are weighing on UK financial markets. UK bank funding costs and non-financial high-yield corporate bond spreads have risen sharply and by more than in other advanced economies. UK-focused equity prices have fallen materially. Sterling has depreciated further, and its volatility has risen substantially. Market-based indicators of inflation expectations in the United Kingdom have risen, including at longer horizons.

The further intensification of Brexit uncertainties, coupled with the slowing global economy, has also weighed on the near-term outlook for UK growth. Business investment has fallen for each of the past three quarters and is likely to remain weak in the near term. The housing market has remained subdued. Indicators of household consumption have generally been more resilient, although retail spending may be slowing.

The MPC has previously noted that shifting expectations about Brexit among financial markets, businesses and households could lead to greater-than-usual short-term volatility in UK data. Judging the appropriate stance of monetary policy requires separating these shorter-term developments from other more persistent factors affecting inflation and from the dynamics of the economy once greater clarity emerges about the nature of EU withdrawal.

Domestic inflationary pressures have continued to build. The labour market remains tight, with employment growth picking up in the latest data and the unemployment rate likely to stay around 4% in the near term. Annual growth in regular pay has risen to 3¼%, stronger than anticipated in the November Report. In contrast, services CPI inflation has been subdued. The inflation expectations of households and professional forecasters have remained broadly unchanged.

The Committee judged in November that, were the economy to develop broadly in line with its Inflation Report projections, which were conditioned on a smooth adjustment to the average of a range of possible outcomes for the UK's eventual trading relationship with the European Union, a margin of excess demand was expected to emerge. In that context, an ongoing tightening of monetary policy over the forecast period, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target at a conventional horizon.

The broader economic outlook will continue to depend significantly on the nature of EU withdrawal, in particular: the form of new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond. The appropriate path of monetary policy will depend on the balance of the effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. The MPC judges at this month's meeting that the current stance of monetary policy is appropriate. The Committee will always act to achieve the 2% inflation target.

(BOE) Bank Rate maintained at 0.75%