Sample Category Title

It's up, up, up for gold prices. The base metal has not had a losing session since December 19 and the upward movement has continued on Tuesday. In the North American session, the spot price for an ounce of gold is $ 1311.93, up 0.64% on the day. On the release front, today's sole event was Final Manufacturing PMI, which climbed to 55.1, edging above the estimate of 55.0 points. This marked the highest level since March 2015. On Wednesday, the Federal Reserve will publish the minutes of its December meeting, and the US will release ISM Manufacturing PMI, a key manufacturing report.

Gold climbed 2.2% percent in December, and the upward trend has continued on Tuesday, with gold taking advantage of a broadly weaker US dollar. Gold has punched above $1310 earlier on Tuesday, for the first time since late September. With the US economy expanding above 3% and the Fed poised to raise rates for a second straight month, the gold rally has surprised many experts, as stronger economic conditions usually translate into stronger risk appetite, at the expense of gold prices. On Friday, the US releases wage growth and non-farm payrolls, and if the readings beat expectations, the dollar could recover some of its recent losses and send gold prices lower.

Traders can expect the Federal Reserve in the headlines a fair amount early in the New Year. Investors will be monitoring the Fed on Wednesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.

The British pound has started the New Year with gains. In Tuesday's North American trade, GBP/USD is trading at 1.3580, up 0.55% on the day. The pound is currently at its highest level since mid-September. On the release front, British Manufacturing PMI slowed to 56.3, shy of the forecast of 58.0 points. In the US, today's sole event was Final Manufacturing PMI, which climbed to 55.1, edging above the estimate of 55.0 points. This marked the highest level since March 2015. On Wednesday, the UK releases Construction PMI. In the US, the FOMC will publish the minutes of its December meeting, and we'll get a look at ISM Manufacturing PMI.

The new trading week kicked off in the UK with Manufacturing PMI. Although the index missed expectations, the reading pointed to expansion in the manufacturing sector, which has received a boost from strong global demand for British exports. As well, the weak pound has also made British products less expensive. The markets are expecting continued growth in the construction and services sectors later this week.

Traders can expect the Federal Reserve in the headlines a fair amount early in the New Year. Investors will be monitoring the Fed on Wednesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.

USD/JPY has started the week with losses. In the Tuesday session, USD/JPY is trading at 112.11, down 0.51%. On the release front, there are no Japanese events on the schedule, and Japanese bank are closed for a holiday. In the US, today’s sole event was Final Manufacturing PMI, which climbed to 55.1, edging above the estimate of 55.0 points. This marked the highest level since March 2015. On Wednesday, the FOMC will publish the minutes of its December meeting, and we’ll get a look at ISM Manufacturing PMI.

Japanese inflation indicators continue to point upwards. The final Japanese event of the year was Bank of Japan Core Inflation, which the BoJ relies on to measure inflation. The indicator climbed 0.6%, edging above the estimate of 0.5%. This marked a 3-month high. Earlier last week, other inflation indicators also beat their estimates, underscoring that inflation is on the move. Still, the BoJ has made it abundantly clear that it will not tighten its ultra-accommodative monetary policy until inflation is close to the Bank’s 2 percent inflation target. The minutes of the October meeting indicated that most members favored a continuation of the current ultra-accommodative policy. This could weigh on the yen, as other central banks, such as the ECB, the Federal Reserve and the Bank of Canada have tightened policy in recent months, widening divergence with the Bank of Japan.

Traders can expect the Federal Reserve in the headlines a fair amount early in the New Year. Investors will be monitoring the Fed on Wednesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation

GOLD - The commodity faces further upside pressure but with caution of a corrective pullback. On the downside, support comes in at the 1,300.00 level where a break will turn attention to the 1,290.00 level. Further down, a cut through here will open the door for a move lower towards the 1,280.00 level. Below here if seen could trigger further downside pressure towards the 1,270.00 level. Conversely, resistance resides at the 1,320.00 level where a break will aim at the 1,330.00 level. A turn above there will expose the 1,340.00 level. Further out, resistance stands at the 1,350.00 level. Its daily RSI is bullish and pointing higher suggesting further strength. All in all, GOLD looks to strengthen further on correction.

The kiwi dollar retreated in 2017 amid falling dairy prices, political uncertainties, and a less-than-hawkish stance by the RBNZ. Are better times ahead for the NZD? That may depend primarily on whether and when the Reserve Bank will begin to raise interest rates. Market pricing is leaning towards a rate hike in 2018, but the RBNZ's own forecasts suggest that will only happen in mid-2019. The market and the Bank are currently at odds, and something has to give.

The New Zealand dollar finished 2017 on the back foot, underperforming all its major peers besides the greenback. Dairy prices tumbled, the recent general election introduced considerable political uncertainty, and the Reserve Bank of New Zealand (RBNZ) refrained from providing any optimistic signals that rate hikes are looming. The Bank's verbal warnings regarding the strength of the NZD and hints of direct FX intervention also played a role in the kiwi's underperformance. Is a recovery, or further slump on the cards for 2018?

Kicking off with monetary policy, the RBNZ looks to be going nowhere fast. The Bank's latest forecasts suggest interest rates may only begin to rise in mid-2019. Indeed, despite the rapid tightening in the nation's labor market this year, wages hardly accelerated while core inflation remains subdued. Unless this changes drastically in 2018, it's unlikely that the RBNZ will hurry to raise rates.

However, market pricing is not in line with this view. New Zealand's overnight index swaps indicate a 72% probability for a quarter-point rate increase by the end of 2018. This has two major implications. First, if the Bank remains on hold as its own estimates suggest, that would come as a negative surprise to the market, thereby weighing on the NZD. Second, even if the Bank does act, so long as it only delivers one hike, any positive reaction in the kiwi could be relatively limited as most of this is priced in already. Most importantly, any major rallies in the NZD will likely see the RBNZ talking down the currency again, on concerns that a higher exchange rate could act as a drag on inflation and growth.

In terms of dairy products - New Zealand's biggest export - not much is expected by futures contracts. Looking at whole milk powder futures on the New Zealand Derivatives Exchange (NZX), prices are expected to finish 2018 practically unchanged. Thus, absent some major surprise that alters this outlook, commodity prices seem unlikely to affect the kiwi much over the year.

Finally, the new Government is not something to overlook. The NZD plunged after the election, as uncertainty over the new administration's policies set in. Some concerns were indeed justified, as the new regime soon cancelled tax cuts scheduled for 2018, and announced it will expand the RBNZ's mandate to include full employment in addition to its price stability target. Importantly though, the administration's agenda has since become much clearer in terms of what it will seek to implement, alleviating some uncertainty.

Taking everything together, downside risks seem to outweigh the upside ones for NZD, albeit not significantly. Kiwi/dollar could finish 2018 close to 0.6800, a level that acted as a reliable support barrier in 2017. On the other hand, if upside risks do materialize, for instance by the RBNZ raising interest rates or by milk prices rallying, the pair could surge and challenge the 0.7360 territory. However, a break above that hurdle could cause the Bank to intervene verbally by voicing concerns regarding the exchange rate, thereby keeping any further gains in check.

European stock markets have started 2018 with losses, and the CAC index is in red territory in the Tuesday session. Currently, the index is at 5278.00, down 0.62% on the day and at its lowest level since late September. On the release front, French Manufacturing PMI improved to 58.8, but this missed the estimate of 59.3 points. Eurozone Manufacturing PMI climbed to 60.6 points, matching the forecast. On Wednesday, the Federal Reserve will publish the minutes of its December meeting.

At the Federal Reserve December meeting, policymakers raised rates by 25 basis points, to a range between 1.25% and 1.50%. The Fed will release the minutes of the meeting on Wednesday, and traders should consider the event a market-mover. The December hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could reverse directions and gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.

The French and eurozone economies rebounded in 2017, and inflation, which has chronically been at low levels, also moved higher. Annual average inflation inched up to 1.5% in November, up from 1.4% in October. This marked a multi-year high. In December, in a nod to stronger economic activity in 2017, the ECB raised its forecasts for growth and inflation for the eurozone from this year through to 2019. Still, inflation remains well below the ECB target of around 2.0%, and ECB policymakers are unlikely to announce an end to their stimulus package until inflation moves closer to the 2.0% target.

Copper future contract with delivery in March is clearly in an uptrend since December 5, where it turned increasingly bullish following the rebound on 2.9398. The price snapped the 14 winning days, recording a red session on December 28 after it hit a near 4-year high at 3.3175.

In addition, the red metal is still trading comfortably above the 3.2563 support level, however, if the bearish move extends, the aforementioned level could be the first stop. A drop below 3.2563 could drive the price towards the 3.2324 strong support barrier, which overlaps with the 50-day simple moving average as well as with the 23.6% Fibonacci retracement level of the last big up-leg with low at 2.9395 and high at 3.3175.

From the technical point of view, on the 4-hour chart, the parabolic indicator signals for bearish movement along with the momentum indicators. The RSI indicator fell below the overbought zone and is softly sloping to the downside, whilst the MACD oscillator is losing momentum as it declined below its trigger line.

The U.S dollar has fallen to a three-week trading low against the Japanese yen, as weakness in the greenback drives the pair lower. The USDJPY has fallen below its key 100-day moving average, indicating medium-term weakness, with price-action so far reaching an intraday-low of 112.11. The U.S dollar index has declined even further during the European trading session, falling towards the 91.90 support level. Traders now await the United States market open, with the major macroeconomic release of the day, the U.S Manufacturing PMI for the month of December.

The USDJPY pair remains strongly bearish while trading below the 112.48 level, further losses towards 112.03 and 111.60 appear likely.

Should price-action move above the 112.48 level, buyers will likely test towards the 112.70 level. Extended weekly resistance is found at the 113.10 level.

The British pound has moved to its highest trading level against the greenback in four-weeks during the European trading session, hitting 1.3566. The GBPUSD pair has now pulled back marginally after the United Kingdom's Manufacturing PMI for the month of December came in weaker than expected. Price-action is currently testing the former monthly-high at 1.3551, which is being used as a major pivot point for intraday traders. Moving into the U.S trading session, financial markets will look to the rapid decline in the U.S dollar index, and the release of the United States Manufacturing PMI for December.

The GBPUSD pair is strongly bullish while trading above the 1.3551 technical level, buyers will likely target the 1.3610 and 1.3656 upside levels.

Should price-action on the GBPUSD pair fall below the 1.3551 level, strong intraday technical support is found at the 1.3500 and 1.3468 levels.

Dollar's broad based selloff continues as 2018 starts. In particular, EUR/USD reaches as high as 1.2080 and is set to take on 1.2091 key resistance. USD/JPY is holding above 112.02 support for the moment, but it looks vulnerable. Among the currencies, Euro is so far trading as the strongest one, followed by Sterling. But Swiss Franc clearly lags behind its European rivals.

UK PMI manufacturing dropped more than expected

UK PMI manufacturing dropped to 56.3 in December, down from 58.2 and missed expectation of 57.9. Markit Director Rob Dobson said in the release that "expansion remained comfortably above long-term trend rates." And, "the sector has therefore broadly maintained its solid boost to broader economic expansion in the fourth quarter." Besides, "the outlook is also reasonably bright, with over 50 percent of companies expecting production to be higher one year from now." 

From Eurozone, PMI manufacturing was finalized at 60.6 in December, unrevised. Germany PMI manufacturing was finalized at 63.3, unrevised. France PMI manufacturing was revised lower to 58.8. Italy manufacturing dropped to 57.4 in December.

China Caixin PMI manufacturing improved

China Caixin PMI manufacturing rose to 51.5 in December, up from 50.8 and beat expectation of 50.7. That's the highest level in four months. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group said in the release that "manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilized in 2017 and has even performed better than expected,." However, he also warned of the "downward pressure on growth due to tightening monetary policy and strengthening oversight on local government financing."

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1949; (P) 1.1987 (R1) 1.2039; More....

EUR/USD accelerates to as high as 1.2080 so far. Intraday bias remains on the upside for near term target at 100% projection of 1.1553 to 1.1960 from 1.1717 at 1.2124, which is above 1.2091 high. On the downside, below 1.1998 minor support will turn intraday bias neutral and bring consolidation before staging another rally.

In the bigger picture, rise from 1.0339 medium term bottom is seen as a corrective move for the moment. Therefore, in case of another rally, we'd be expect 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 to limit upside and bring reversal. That is also close to 61.8% projection of 1.0569 to 1.2091 from 1.1553 at 1.2494.

Economic Indicators Update