Dollar Higher after Defending Support, Canadian Even Stronger

Market overviews

Dollar trades generally higher in Asian session today, rebound from near term support levels against Euro and Swiss Franc. The greenback is also seen losing some downside momentum against Sterling and Australian Dollar. Recovery in US treasury yields help and there is also some optimism on the result of US-China trade talks. Nevertheless, Canadian Dollar is even stronger for now, ahead of BoC rate decision on Wednesday. While BoC is generally expected to hold interest rate unchanged at 1.75%, it’s not a total consensus. There is risk of an hawkish outcome from he central bank

In Asian markets, Nikkei is currently trading up 1.03%. But momentum is weak elsewhere as Hong Kong HSI is just up 0.27%. Singapore Strait Times is up 0.22%. China Shanghai SSE is even down -0.20%. Nevertheless, Japan 10 year JGB yield turns positive today, currently up 0.0214 at 0.007. It was at as low as -0.045 last week. It’s a positive development.

Overnight, DOW closed up 0.42% at 23531.35. S&P 500 gained 0.70% while NASDAQ rose 1.26%. DOW is still limited by 23713.93 fibonacci level. S&P 500 is held by equivalent level at 2537.61. Also NASDAQ is kept relatively far below equivalent level at 6932.44. The post-Christmas rebounds are viewed as nothing more than a corrective rise for now.

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Development in the bond markets was positive though. Yield curve has flattened in the inverted range, from 1-year (2.600), 2-year (2.541), 3-year (2.525) to 5 year (2.539). Also, they’re now back above federal funds rate target of 2.25-2.50%.

Technically, EUR/USD is held in range below 1.1499 resistance and eventual downside break out is still in favor. USD/CHF also recovered after testing 0.9789 temporary low. GBP/USD is held below 1.2814 resistance and thus, keeping near term outlook bearish. USD/CAD’s break of 55 day EMA now suggests that, at least, the decline from 1.3664 is going deeper towards 1.3118 fibonacci level. Yen crosses are now close to important resistance level and we’ll see if the rebounds could extend.

US Ross: Very good chance to get a reasonable settlement that China can live with

US Commerce Secretary Wilbur Ross expressed his optimism on US-China trade negotiation in a CNBC interview yesterday. He said “there’s a very good chance that we will get a reasonable settlement that China can live with, that we can live with and that addresses all of the key issues. And to me those are immediate trade. That’s probably the easiest one to solve,”

Regarding the slowdown in China, Ross said it’s a “big problem in their context of having a very big need to create millions of millions of jobs to hold down social unrest coming out of the little villages”. And that could create a “real social problem. But he added, regarding the slowdown, he is “not happy nor guilty. We expected this would happen.” But, “what has changed is China now understands how independent they are on us.”

US delegation is having the second day of trade talks in Beijing today.

EU mulling reassurances to help UK PM May get Brexit deal approved

Reuters reported, with unnamed sources, that the EU is considering ways to help UK Prime Minister Theresa May to secure support from the parliament for the Brexit agreement. The Irish backstop is the key issue in focus. It’s politically a solution to avoid a hard Irish border that is not intended to be triggered. Even if it’s triggered, the backstop would be temporary. However, legally, UK is not allowed to quit the backstop unilaterally. EU officials are said to be considering the reassurances needed. One resolution is a commitment by EU to have a UK-EU free trade agreement in place by the end of 2021. That would help avoid triggering the backstop.

Separately, there are rumors that UK and EU officials are discussing the possibility of extending the Article 50 withdrawal notice, if the Brexit deal cannot be approved by the parliament by March 29 Brexit date. But the Prime Minister office reiterated to Telegraph that “The PM has always said that we would be leaving the EU on 29 March 2019, and we would not extend Article 50.”

Debate on the Brexit agreement will resume in Commons this Wednesday. A meaningful vote is scheduled for Tuesday, January 15.

On the data front

Australia trade surplus narrowed slightly to AUD 1.93B in November, and missed expectation of AUD 2.18B. Import rose 1.7% while exports rose 1.4%. Swiss unemployment rate, German industrial production and Eurozone confidence indicators will be featured in European session. Later in the day, Canada and US will release trade balance.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1356; (P) 1.1387; (R1) 1.1430; More…..

EUR/USD retreats mildly today as it faced some resistance from 1.1496. And intraday bias remains neutral for now. At this point, price actions from 1.1215 are still viewed as a corrective pattern. Thus, downside breakout is favored. On the downside, break of 1.1307 minor support will turn bias back to the downside for 1.1215 low. Break will resume down trend from 1.2555 to 1.1186 key fibonacci level. Nevertheless, sustained break of 1.1499 resistance will suggest near term reversal and bring stronger rebound back to 1.1621 resistance first.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
00:30 AUD Trade Balance (AUD) Nov 1.93B 2.18B 2.32B 2.01B
05:00 JPY Consumer Confidence Dec 42.8 42.9
06:45 CHF Unemployment Rate Dec 2.40% 2.40%
07:00 EUR German Industrial Production M/M Nov 0.30% -0.50%
10:00 EUR Eurozone Business Climate Indicator Dec 1.09
10:00 EUR Eurozone Economic Confidence Dec 108.9 109.5
10:00 EUR Eurozone Industrial Confidence Dec 3.1 3.4
10:00 EUR Eurozone Services Confidence Dec 13.3
10:00 EUR Eurozone Consumer Confidence Dec F -4.4 -6.2
11:00 USD NFIB Small Business Optimism Dec 103.6 104.8
13:30 CAD International Merchandise Trade (CAD) Nov -1.9B -1.2B
13:30 USD Trade Balance Nov -54.0B -55.5B