• EUR/USD started December with a strong bullish breakout.
  • The level to beat for buyers is the 1.1110 resistance.

EUR/USD daily chart

EUR/USD currency pair, on the daily time frame, is trading in a bear trend below the 200-day simple moving averages (DMAs). However, this Monday, the market had a strong reversal up above the 1.1000 handle and the 50/100 SMA.

EUR/USD four-hour chart

EUR/USD is approaching the1.1100 resistance while challenging the 200 SMA on the 4-hour chart. The buyers have likely taken control and if 1.1100 is taken out, the market can advance towards the 1.1137 and 1.1180 resistances, according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

The spot had an unusually large bullish breakout this Monday. Support can be seen at the 1.1062, 1.1045 and 1.1022 price levels, according to the Technical Confluences Indicator.

Additional key levels

  • NZD/USD steps back from 200-day EMA amid trade-negative headlines from the US.
  • Downbeat US data contrast to positive numbers from China and home propelled the quote to break key resistance.
  • A light economic calendar keeps focussing on RBA, trade headlines.

NZD/USD consolidates gains to 0.6505 at the start of Tuesday’s Asian session. While recent announcements from the United States (US) show return of trade protectionism, upbeat data from China and home managed to please the Kiwi buyers the previous day.

The US Commerce Secretary Wilbur Ross’s comments signaling increased tariffs on Chinese production from December 15 joins the US taking harsh stand against metal imports from Argentina and Brazil to challenge the trade sentiment. The risk tone gets further weakness from the Reuters’ news that the US is considering higher tariffs on the European Union following World Trade Organization’s (WTO) ruling in Airbus saga. Further, China’s release of unreliable US entities’ list and sanctions against some of them, coupled with suspending the US military visit to Hong Kong keep the traders on their toes. Being a currency from the export-oriented economy, challenges to global trade system push the New Zealand dollar (NZD) buyers to rethink.

The kiwi pair surged to the four-month high the previous day as initial gains on the back of upbeat activity numbers from China and trade numbers from home got additional boost after the US dollar (USD) dropped across the board. The reason could be a consecutive fourth month of ISM Manufacturing Purchasing Managers’ Index (PMI) below 50. Investors could also argue about the greenback’s lost charm due to doubts over the US-China trade relations.

Additionally, news that the New Zealand government will bring major infrastructure spending also pushed the quote further towards the north.

Even so, the US 10-year treasury yields gain near four basis points while the Wall Street end the first trading day of December on the red side.

Moving forward, the absence of major data at home will shift market attention to the monetary policy meeting at the largest customer Australia. The Reserve Bank of Australia (RBA) is widely expected to leave benchmark interest rates unchanged amid a set of mixed data and challenges to the US-China trade deal. Though, this won’t reduce the importance of the trade headlines to affect the moves.

Technical Analysis

Despite rising to the four-month top, prices are yet to cross 200-day Exponential Moving Average (EMA) level of 0.6515, which in turn can trigger fresh pullback to September month high surrounding 0.6450 on the downside break of June low of 0.6487. Meanwhile, August top near 0.6590 will pop-up on bull’s radar once prices rally past-0.6515.

Following a poor result in the US ISM manufacturing index fell which slipped 0.2pts to 48.1 in November, President Donald Trump tweets:

Manufacturers are being held back by the strong Dollar, which is being propped up by the ridiculous policies of the Federal Reserve – Which has called interest rates and quantitative tightening wrong from the first days of Jay Powell!

The US ISM manufacturing index fell 0.2pts to 48.1 in November as analysts at ANZ Bank described as "a negligible decline", and noted that the data was pushed lower by weakness in employment (46.6 vs 47.7) and new orders (47.2 vs 49.1). "Nonetheless, it was the fourth consecutive month below 50. By contrast, the Markit manufacturing PMI rose. Within the breakdown, new orders lifted 0.5pts to 53.0, new export orders fell 0.3pts to 50.7 and employment rose 0.8pts to 52.3. Output prices rose 1.7pts to 51.1 and input prices rose 0.8pts to 52.3. Overall, the data showed US manufacturing activity is still struggling."

  • Forex Today: Dollar starts the week with the wrong footing

  • DJIA lost 263 points, or 0.9% to around 27,787.
  • S&P 500 index ended roughly 27 points lower, or 0.9% to 3,114.
  • The Nasdaq Composite index fell back 97 points, or 1.1%, to close around 8,567.

US benchmarks for the start of the month were slammed making for the worst single-day performance in over a month following weakness in the US manufacturing data sector shown through the latest economic data. At the same time, angst over global trade relations has been weighing on investor sentiment.

The Dow Jones Industrial Average, DJIA, lost 263 points, or 0.9% to around 27,787 while the S&P 500 index ended roughly 27 points lower, or 0.9% to 3,114. The Nasdaq Composite index fell back 97 points, or 1.1%, to close around 8,567.

US data misses the mark

In data, and in stark contrast to that seen from China over the weekend in yesterday's Asian session, the Institute for Supply Management's purchasing managers index for the US manufacturing sector came in at 48.1% for November, below forecasts of a 49.2% reading but by only a negligible 0.1% compared to the prior reading. "Nonetheless, it was the fourth consecutive month below 50, " analysts at ANZ Bank noted.

On the trade front, there were a number of conflicting headlines, but Commerce Secretary Wilbur Ross said that President Trump is prepared to levy more duties on Chinese goods if a deal is not reached, with 15% tariffs on $160 billion in imports scheduled to take effect as soon as December 15th.

Currency wars in full effect

Coupled with announcements that President Donald Trump will restore tariffs on steel and aluminium imports from Brazil and Argentina, risk appetite was waning in the US sessions – Trump justified the move saying those countries' weak currencies had made it harder for US food exports to compete.

"Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers," Mr Trump said.

In a tweet after the market closed, he claimed:

"US manufacturers are being held back by the strong dollar, which is being propped up by the ridiculous policies of the Federal Reserve – Which has called interest rates and quantitative tightening wrong from the first days of Jay Powell!"

DJIA levels

  • WTI consolidates Friday’s losses near $56.00 a barrel.
  • The level to beat for bears is the 56.00 handle.

Crude oil daily chart

The crude oil West Texas Intermediate (WTI) is currently trading near $56.00 a barrel and the 50/100 DMAs consolidating Friday’s drop.

Crude oil four-hour chart

WTI is correcting the bear breakout below the 200 SMA on the four-hour chart. The market seems vulnerable to the downside. However, more consolidation might be on the cards in the medium term.

Crude oil 30-minute chart

The is trading below its main SMAs, suggesting a bearish bias in the near term. Resistances are seen at the 56.40 level and the 57.00 handle. Sellers are likely looking for a daily close below the 56.00 level to drive the price south towards the 54.50 level.

Additional key levels

Analysts at MUFG Bank highlight the British pound ended November practically unchanged versus the US dollar, consolidating previous gains. They see the upside limited for GBP.

Key Quotes:

“The pound ended November close to unchanged versus the US dollar and reflects the relative stability of election opinion polling that point to the Conservative Party winning a majority in the election on 12th December. An influential YouGov poll that predicted the 2017 hung parliament predicts a 68-seat majority for the Tories and the best result since Margaret Thatcher in 1987. The pound is deriving support from this given the reduced risk of another hung parliament that would immediately bring back the prospect of a no-deal Brexit. We expect the polls to prove accurate and for Boris Johnson to win a majority and then for the UK to leave the EU on schedule on 31st January 2020.”

“We have pencilled in a rate cut by the BoE later in 2020 as we are dubious of the expectation that the UK’s departure from the EU will alleviate much uncertainty and prompt a rebound in economic activity. No-deal risks will not have gone away and given the BoE is already shifting toward the potential for cutting rates (7-2 vote with two voting to cut in November) we believe there is a high likelihood of monetary easing next year.”

“Following a Tory majority election victory in December, we would certainly expect GBP to break higher and into a 1.3000-1.3500 ranger versus USD. A brief move even higher is possible. However, we see greater risks of GBP correcting lower in H2 2020 as no-deal risks at the end of 2020 possibly increase if the Tory government sticks to its promise and does not extend the transition period from the end of 2020.”

Here is what you need to know Monday, November 3rd:

  • The dollar was the worst performer, falling against all of its major rivals on the back of a dismal ISM Manufacturing PMI down to 58.1 in November.
  • Risk aversion took over the financial markets amid the back and forth in the trade war front. US President Trump triggered the dismal sentiment ahead of Wall Street’s opening, by announcing immediate tariffs of base metals’ imports coming from South America. Earlier in the day, China said it won’t allow the visit of the US military to Hong Kong and announced sanctions against several US non-government organizations for encouraging protesters. Also, Wilbur Ross claimed Trump could lift tariffs on China if a deal is not reached. Finally, White House advisor, Conway, announced phase one of China trade deal is being written up, but his words were too little too late.
  • The Sterling was the worst performer, ending the day around 1.2930, unchanged from Friday’s close against the greenback, as polls suggest a hung Parliament.
  • Wall Street collapsed, safe-haven yen appreciated, and gold also advanced, although at a slower pace. The bright metal retains a neutral stance.
  • Crude oil prices held at the lower end of the last week’s range, as investors wait for fresh clues on OPEC+ next move.
  • Cryptocurrencies consolidated weekend losses.
  • AUD/USD trades at over one-week highs ahead of the RBA monetary policy announcement. The central bank is expected to maintain the status quo.

Analysts at Citibank no longer expect the Reserve Bank of Australia (RBA) to introduce a QE program next year and keep their forecast for one further 25bp rate cut to 0.50% in February. According to them, the mentioned forecast may improve the sentiment of the Australian dollar.

Key Quotes:

“We do in fact expect another cut (Feb 2020) from the RBA this cycle; and Governor Lowe has certainly left the door open to further cuts as the central bank is “prepared to ease monetary policy further if needed”. So perhaps this is just recognising the inevitable. A lot of dovishness is priced in Aussie already. In terms of short term drivers: Aussie likely also trades up with the wave of trade détente.”

“The 0.6770 support range is a key level to watch. We are also seeing a double bottom set-up forming on the daily chart and a close above the neckline at 0.6835 would suggest a target of 0.69 with next support at 0.6671.”

The Financial Times reports that, "the Conservatives are braced for their most perilous week of the election campaign, with Tory officials worried that the party’s chances of success at the December 12 poll risk being thwarted by Donald Trump’s visit to the UK, the final leaders’ television debate and the potential collapse of the Liberal Democrat vote."

The article notes that although prime minister Boris Johnson is ahead in opinion surveys, senior Tories are worried that events beyond their control may knock their strategy off course.

Key notes

  • "The immediate fears at Conservative headquarters are focused on the US president, who was due to arrive in London on Monday evening for a summit of Nato leaders.
  • British officials have urged Mr Trump not to intervene in the election campaign by endorsing Mr Johnson — partly because Labour leader Jeremy Corbyn has cast the prime minister as being in the White House’s pocket.
  • So far Boris has had a strong lead — but one of the warning signs in [the] 2017 [general election] was when Corbyn started to catch Theresa May."

FX implications

The twitter feed will be full of updates this week in this regard and depending on the sentiment GBP traders could be in store for some price volatility.

  • GBP/USD: A Tory victory is close to fully priced – MUFG

Analysts at MUFG Bank expect the USD/INR pair to trade at 71.00 during the current quarter, at 71.50 over the first quarter of next year and at 72.50 by the third quarter of 2020.

Key Quotes:

“The Indian rupee was the worst performing Asia ex-Japan (AXJ) currency for the second consecutive month in November. Most of the rupee’s losses were recorded during the first half of November, driven by narrowing real yields, and risk aversion due to US-China trade deal pessimism, sluggish India data releases, and Moody’s decision to downgrade India’s sovereign debt rating outlook to “negative” from “stable” with the rating kept at Baa2 on 7th November. Rupee weakness came amid a 1.7% m/m increase in the foreign reserves to a fresh record high of USD448.3bn as at 15th November. The acceleration in headline CPI to 4.62% y/y in October drove real yields lower to 0.5%, which is the lowest since July 2016 and possibly below the RBI’s comfortable threshold range for keeping a stable rupee. This partly explains the net sell-off in Indian government bonds in November versus a net inflow in October.”

“The rupee’s slight recovery during the second half of November was mostly driven by merger and acquisition flows, which is one of the reasons why India is one of the only two AXJ countries other than Taiwan to record a net inflow into equities in November. With such flows likely to be one-off, the rupee will face downward pressure again towards year-end as global and domestic risk sentiments remain weak and India’s real yield fall further in view of another 25bps cut to the benchmark repo rate by the RBI at the next meeting on 5th December.”