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No Range Breakout in Dollar Yet Despite Vaccine Optimism

Vaccine optimism pushed DOW to new record high overnight and positive sentiment continues in Asian session. Dollar, Yen and Swiss Franc are the weaker ones, while commodity currencies are strongest. Though, major pairs and crosses are generally bounded inside last week’s range. That is, Dollar and Yen are holding above near term lows despite the selloff. Currency traders are still not committed to push the pairs to resume the near term trends.

Technically, Gold recovered after hitting 1850.50, but there was no follow through buying to get rid of 4 hour 55 EMA yet. Another fall is still in favor through 1846.39 key support, the resume the decline 2075.18 high. However, sustained trading above 4 hour 55 EMA would set the base for further rise back to 1965.50 resistance. That, if happens, could indicate that Dollar bears are finally back in full gear.

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In Asia, currently, Nikkei is up 0.21%. Hong Kong HSI is up 0.11%. China Shanghai SSE is down -0.20%. Singapore Strait Times is up 1.04%. Japan 10-year JGB yield is up 0.0016 at 0.025. Overnight, DOW rose 1.60% to new record at 29964.29. S&P 500 rose 1.16%. NASDAQ also rose 0.80%. 10-yaer yield rose 0.013 to 0.906, back above 0.9 handle.

RBA minutes: Focus ahead would be government bond purchase program

Minutes of the November 3 RBA meeting noted that the board is “prepared to do more if necessary”, after delivering a package of additional stimulus. Though, “focus over the period ahead will be the government bond purchase program”.

Under the current program to purchase longer-dated bonds, RBA would buy nominal bonds issued by the Australian Government and by the states and territories, with an expected 80/20 split. Purchases would be done through secondary market, but not directly from the government. Also, RBA “remained prepared to purchase bonds in whatever quantity is required to achieve the 3-year yield target.”

As for interest rate, with cash rate target at 0.10% and exchange settlement rate at 0%, they would have been “lowered as far as it made sense to do so in the current environment”. There is “little to be gained from short-term interest rates moving into negative territory”. Negative policy rate is seen as “extraordinarily unlikely”.

Suggested readings on RBA:

ECB Lane: European debt levels sustainable in the context of very low interest rates

ECB Chief Economist Philip Lane said that even though debt levels surged due to fiscal spending across Europe to counter pandemic impacts, they would remain sustainable.

He pointed out, “in the context of very low interest rates, in the context of the macroeconomic environment, the assessment should be that this is something that is sustainable”.

“There is no reason to believe that this has some kind of intrinsic dynamic that will lead us to a return of the conditions of ten years ago,” Lane added. “The cost of making the payments on this debt in the years to come will be quite contained.”

Looking ahead

European calendar is near empty with Italy trade balance featured. Later in the day, US retail sales will take center stage, with import price, industrial production, business inventories and NABH housing index scheduled too. Canada will release housing starts, foreign securities purchases and wholesale sales.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3046; (P) 1.3093; (R1) 1.3121; More….

Intraday bias in USD/CAD remains neutral at this point. With 1.3057 minor support intact, another rise could still be seen to 55 day EMA (now at 1.3203) and above). But overall, larger decline form 1.467 is expected to resume sooner or later as long as 1.3389 resistance holds. On the downside, break of 1.3057 minor support will turn bias to the downside for retesting 1.2928 low.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). Rejection by 55 week EMA is keeping outlook bearish. Sustained break of 61.8% retracement of 1.2061 to 1.4667 at 1.3056 will target a test on 1.2061 (2017 low). But we’d expect loss of downside momentum as it approaches this key support. On the upside, firm break of 1.3389 resistance is needed to indicate medium term bottoming. Otherwise, outlook will remain bearish in case of rebound.

Economic Indicators Update

GMTCcyEventsActualForecastPreviousRevised
00:30AUDRBA Minutes
09:00EURItaly Trade Balance (EUR) Sep3.93B
13:15CADHousing Starts Y/Y Oct209K
13:30CADForeign Securities Purchases (CAD) Sep15.51B
13:30CADWholesale Sales M/M Sep0.30%
13:30USDRetail Sales M/M Oct0.50%1.90%
13:30USDRetail Sales ex Autos M/M Oct0.60%1.50%
13:30USDImport Price Index M/M Oct0.30%0.30%
14:15USDIndustrial Production M/M Oct1.00%-0.60%
14:15USDCapacity Utilization Oct72.30%71.50%
15:00USDBusiness Inventories Sep0.40%0.30%
15:00USDNAHB Housing Market Index Nov8585
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