As anticipated, the IMF approved the inclusion of CNY into the SDR basket effective 1 October 2016, joining USD, EUR, GBP, and JPY as the world reserves currency. Overnight data was not too promising. The rebound in home sales was weaker than expected while regional manufacturing readings from Chicago and Dallas reaffirmed protracted weakness in the US manufacturing sector. There was also nothing in the UK data that suggest the BOE will tighten anytime soon. Japan housing starts unexpectedly fell, while Hong Kong retail sales extended its decline for the eighth consecutive month. USD index managed to advance 0.15% to 100.17, inching higher in US trade despite an apparent lack of upside strength amid soft US data.
EUR/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: EUR opened at 1.0589 and closed at 1.0563, with only around 20 pips differences yesterday. The downside pressure on euro was relieved by a mix of German inflation figures. However, the data did not have too much influence at this stage since markets firmly focus on the coming ECB meeting. German consumer prices, harmonized to compare with other European countries, rose by 0.3% year over year as expected.
Technical: While 1.0620 caps intraday upside corrections, bears target a test of 1.05 next ahead of an assault on year to date lows. Only a close above 1.07 eases immediate downside pressure.
Interbank Flows: Bids 1.0550 stops below. Offers 1.07 Stops above.
Retail Sentiment: Bullish
Trading Take-away: Sidelines
GBP/USD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: GBP stayed near the lowest level in seven months, falling below 1.50 handle during European session after the newest member of the Bank of England’s Monetary Policy Committee said he is comfortable with keeping interest rates at a record low. It posted the biggest monthly drop since March, down two point eight percent in November.
Technical: With 1.50 breach achieved, expect near term profit taking to meet resistance at 1.5160/80. Only a close above 1.52 eases immediate bearish bias
Interbank Flows: Bids 1.4950 stops below. Offers 1.5150 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
USD/JPY
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: Against the JPY, the USD rose above 123.00, which is the first time in a week. Japan October Industrial Production (YoY) was -1.4%, worse than the market expectations -0.9%. Besides, Japan Housing Starts data was -2.5%, seriously worse than market forecasts 2.6%.
Technical: While 122.50/30 supports downside reactions, market structure remains bullish to test 2015 highs next. A failure at 122 opens a test of 121.40 support next ahead of pivotal 120.
Interbank Flows: Bids 122 stops below. Offers 124 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
EUR/JPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Fundamental: Japan’s 3Q capital spending was surprisingly strong at 11.2% y/y (from 5.6% in 2Q and well above the forecast of just 2.2%). Excluding software spending, capital spending was still a strong 11.2% (from 6.6% in 2Q, and again well above the forecast of 1.7%).
Technical: While 131.30 caps upside reactions, expect a sustained break below 130 to confirm a retest of 2015 lows. Only a close above 132.50 eases immediate bearish pressure. Intraday initial upside hurdle is 130.50, while this caps upside corrections expect further grind lower to retest and break 129.70 lows.
Interbank Flows: Bids 130.50 stops below. Offers 132.50 stops above
Retail Sentiment: Bullish
Trading Take-away: Sidelines
AUD/USD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish
Fundamental: Australia’s current account recorded a smaller deficit last quarter than in the June quarter, when it was its highest in more than seven years, however, the trade gap did not shrink as much as expected. As expected, no policy change from today’s RBA meeting.
Technical: While .7170/50 remains the bid zone, expect grind higher to test .7350 area next, only a close below .7150 concerns near term bullish bias.
Interbank Flows: Bids .7150 stops below. Offers .7300 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
USD/CAD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bullish
Fundamental: USD/CAD pared its earlier strength as it broadly tracked movements in the price of crude oil, with attention shifting to the Bank of Canada interest rate decision today. The Bank of Canada is widely expected to hold interest rates at 0.50 percent through 2016, which contrasts with the US Federal Reserve, as many believe it will raise rates in December.
Technical: Bulls have the ball while 1.3280/60 supports intraday downside. A close below 1.3220 would ease the near term bullish bias and suggest a broader correction is underway.
Interbank Flows: Bids 1.3250 stops below. Offers 1.34 stops above
Retail Sentiment: Bearish
Trading Take-away: Sidelines
