Markets Turn Quiet ahead of US CPI, Dollar Awaits Range Breakout

Market overviews

The markets generally turn quiet in Asian session as markets are look forward to consumer inflation data from US. Before that UK GDP will also be a major focus. Commodity currencies, in particular Canadian Dollar, are losing much upside momentum even though they’re still the strongest ones. Yen’s earlier selloff also lost steam while Dollar is stabilizing. European majors are mixed with Sterling recovering some losses. We’ll see how today’s data would prompt the next move.

Technically, it should be about time for EUR/USD and USD/JPY to break out from their near term range. To be specific, we’re taking about 1.1185/1.1382 in EUR/USD and 112.52/113.94 in USD/JPY. We’re prefer to see synchronized breakout in both pairs to confirm that Dollar is taking a direction.

In Asia, at the time of writing, Nikkei is down -0.53%. Hong Kong HSI is down -0.55%. China Shanghai SSE is down -0.14%. Singapore Strait Times is down -0.22%. Japan 10-year JGB yield is up 0.0053 at 0.056. Overnight DOW closed flat. S&P 500 dropped -0.72%. NASDAQ dropped -1.71%. 10-year yield dropped -0.022 to 1.487.

BoC Gravelle: Supply chain disruptions remains an important upside risk

BoC Deputy Governor Toni Gravelle said in a speech that in the near term, Omicron triggered a sharp drop in oil prices. But further out, “given its potential to restrain the transition to more balanced consumption patterns between goods and services, it could exacerbate upward price pressure on the goods that are experiencing supply constraints.”

“Supply chain disruptions and related cost pressures continue to be an important upside risk,” he added. BoC will “conduct a full assessment of this risk in January when we update our projection for the economy and inflation.”

New Zealand BusinessNZ manufacturing dropped to 50.6, soft growth and rising inflation

New Zealand BusinessNZ Performance of Manufacturing index dropped from 54.3 to 50.6 in November. Looking at some details, production dropped from 53.2 to 52.2. Employment dropped from 51.7 to 48.2. New orders rose from 54.2 to 54.7. Finished stocks dropped from 54.6 to 48.3. Deliveries dropped from 59.9 to 42.9.

BNZ Senior Economist, Doug Steel stated that “the PMI implications for economic (and employment) growth seem clear – soft.  But with obvious difficulties remaining on the supply side, we’d suggest that inflation is still rising.”

Looking ahead

UK GDP, production and trade balance are the main focuses in European session. Germany will release CPI final. Later in the day, US CPI will take center stage while U of Michigan consumer sentiment will also be released.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1265; (P) 1.1306; (R1) 1.1333; More…

Range trading continues in EUR/USD and intraday bias remains neutral. Downside breakout is mildly in favor with 1.1382 minor resistance intact. On the downside, break of 1.1185 will resume larger fall from 1.2348. Next target is 161.8% projection of 1.2265 to 1.1663 from 1.1908 at 1.0934. On the upside, however, firm break of 1.1382 resistance should confirm short term bottoming at 1.1186. Intraday bias will be turned back to the upside for 55 day EMA (now at 1.1462).

In the bigger picture, there are various ways of interpreting the fall from 1.2348 (2021 high). It could be a correction to rise from 1.0635 (2020 low), the fourth leg of a sideway pattern from 1.0339 (2017 low), or resuming long term down trend. In any case, outlook will now stay bearish as long as 1.1703 support turned resistance holds. Sustained break of 61.8% retracement of 1.0635 to 1.2348 at 1.1289 would pave the way back to 1.0635.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
21:30 NZD Business NZ PMI Nov 50.6 54.3
23:50 JPY PPI Y/Y Nov 9.00% 8.50% 8.00%
07:00 EUR Germany CPI M/M Nov F -0.20% -0.20%
07:00 EUR Germany CPI Y/Y Nov F 5.20% 5.20%
07:00 GBP GDP M/M Oct 0.30% 0.60%
07:00 GBP Index of Services 3M/3M Oct 1.20% 1.60%
07:00 GBP Industrial Production M/M Oct 0.20% -0.40%
07:00 GBP Industrial Production Y/Y Oct 2.20% 2.90%
07:00 GBP Manufacturing Production M/M Oct 0.10% -0.10%
07:00 GBP Manufacturing Production Y/Y Oct 1.40% 2.80%
07:00 GBP Goods Trade Balance (GBP) Oct -14.1B -14.7B
09:00 EUR Italy Industrial Output M/M Oct 0.40% 0.10%
13:30 USD CPI M/M Nov 0.70% 0.90%
13:30 USD CPI Y/Y Nov 6.80% 6.20%
13:30 USD CPI Core M/M Nov 0.50% 0.60%
13:30 USD CPI Core Y/Y Nov 4.90% 4.60%
13:30 CAD Capacity Utilization Q3 81.20% 82.00%
14:00 GBP NIESR GDP Estimate (3M) Nov 1.30% 1.00%
15:00 USD Michigan Consumer Sentiment Index Dec P 68.2 67.4