Richmond Federal Reserve President Thomas Barkin said on Monday that he expects to see a vaccine approved by the end, as reported by Reuters.

Additional takeaways

“Still hearing from employers in technology and health care that they can’t find workers.”

“Lower-income service workers like waiters don’t have the skills for the jobs available.”

“A broad rollout of vaccine would not be until summer at best so the next few months could be challenging.”

“Inflation is hard to find in the numbers.”

“Fed’s balance sheet is trading short-term debt for longer duration debt, not printing money.”

“The spike in government spending is behind us as the country moves to divided government.”

“Expecting a slow and steady recovery.”

“In large parts of the country, take out and outdoor dining helped a lot of restaurants.”

Market reaction

The US Dollar Index largely ignored these comments and was last seen gaining 0.16% on the day at 92.51.

Analysts at Citibank forecast the US Dollar Index (DXY) will trade around 92.40 in a 0-3 month period and at 89.80 in a six to twelve-month perspective. 

Key Quotes:

“Our base case heading into 2021 is for a Biden/Harris led government, whilst Congress will be split with Republican control of the Senate and Democrat control of House of Representatives. Less uncertainty is a risk asset positive/ USD negative.”

“There will be no rush to remove the loose fiscal/ loose monetary mix support in our view. As summer data trends decelerate, further Fed support for real rates markets will be increasingly likely in our view, keeping the current USD trend lower intact.”

“The Fed will likely also be keeping an eye on the trajectory of USD real yields. If $ real yields, from intentionally suppressed levels, rise too far, too fast, this may unwind all of the “good work” achieved so far. Therefore the Fed’s shift to average inflation targeting allows it the flexibility to keep policy dovish.”

  • USD/CHF broke out of one*week-old trading range on Monday.
  • Renewed USD strength lifted USD/CHF to a fresh weekly top.
  • US Dollar Index holds above 92.50 after PMI-inspired rally.

The USD/CHF pair spent the Asian session moving sideways around 0.9100 and edged lower to 0.9080 area on broad-based USD weakness during the European trading hours. With the USD staging an impressive rebound in the second half of the day, the pair reversed its direction and touched a fresh weekly high of 0.9148. As of writing, USD/CHF was up 0.2% on the day at 0.9126.

Upbeat PMI data support USD on Monday

Coronavirus vaccine optimism provided a boost to market sentiment on Monday and made it difficult for the greenback to find demand. However, the impressive PMI data from the US and surging Treasury bond yields allowed the USD to outperform its rivals.

The IHS Markit’s preliminary Services PMI and Manufacturing PMI climbed to 57.7 and 56.7 in November, respectively, to show that the economic activity in the private sector continued to grow at a strong pace. The 10-year US Treasury bond yield gained nearly 3% after the data and the US Dollar Index (DXY) jumped to a daily high of 92.80 before going into a consolidation phase. At the moment, the DXY is up 0.2% on the day at 92.53.

On Tuesday, Richmond Fed Manufacturing Index and the Conference Board’s Consumer Confidence Index will be featured in the US economic docket.

Technical levels to watch for

 

  • XAU/USD dives to four-month lows at $1,830.
  • Gold accelerates its downtrend amid broad USD strength.
  • XAU/USD: Confirmation below $1,850 might increase bearish pressure.
     

Gold futures have finally broken support at $1,850 on Monday, plunging to fresh four-month lows at $1,830 amid a broadly stronger US dollar. XAU/USD has managed to find buyers at the mentioned $1,830 although it remains about 1.6% lower on the day.

Gold suffers amid broad USD strength

The yellow metal has accelerated its downtrend from last week highs at $1,900 amid a positive market sentiment after news of AstraZeneca’s vaccine and a stronger US dollar, buoyed by upbeat US macroeconomic figures.

The pharmaceutical giant AstraZeneca has boosted investor’s optimism in Monday, reporting that their COVID-19 vaccine, developed together with the University of Oxford, is 90% effective. This is the third vaccine reporting promising test results, which feeds hopes that the cure for the pandemic that is devastating the global economy could be available over the next months.

In the US, the preliminary Markit Manufacturing PMI survey has shown a larger than expected expansion of private sector activity, which has contributed to increasing demand for the USD. Both manufacturing and services sectors have posted figures well beyond expectations, revealing that US economic activity has been resilient to the COVID-19 impact.

XAU/USD: Breach of $1,850 adds bearish pressure

From a technical point of view, a confirmation below of $1,850 (late-September lows) might attract bears to push the pair lower. On the downside, below intra-day low at $1,830, next areas of interest would be $1,795 (mid-July lows) and $1,760, the 50% Fibonacci Retracement of the March – July rally.

On the upside, the pair should regain $1,850 to shrug off downside pressure and aim towards $1,900 and $1,910 psychological level 100-day SMA. Once above here, the next target would be $1,960/75 (November 9, September 16 highs).

Technical levels to watch

 

 

  • NZD/USD saw a sharp reversal in fortunes dropping from near-two-year highs just under 0.6970 to briefly below 0.6900.
  • Driving the reversal was a broad-based recovery of the US dollar following strong PMI data, although negative US/China news also weighed.  
  • The cross has since recovered back to 0.6920 and looks set to continue to be dominated by risk appetite/USD sentiment.

NZD/USD has reversed sharply lower from near-two-year highs just below 0.6970, with the pair dropping momentarily below 0.6900 before reversing higher again to current levels around 0.6920. On the day, NZD/USD trades with losses of around 20 pips, or of around 0.3%.

Kiwi trades as a function of US dollar sentiment

Strong Q3 retail sales data out of New Zealand just before the reopening of global FX market trade at 22:00GMT on Sunday assisted NZD in getting off to a solid start on the week. Having dropped 14.6% QoQ in the second quarter of the year given Covid-19 first wave lockdowns, retail sales made an impressive comeback in the third quarter of the year, jumping at a QoQ rate of 28.0%.

However, the NZD/USD pair, as is so often the case, has been primarily driven by the waxing and waning of sentiment towards the US Dollar on Monday.

Initially, on Monday, USD was out of demand, amid a market feeling increasingly optimistic about the coming vaccine rollout following AstraZeneca’s release of its results of their final vaccine trial (70% efficacy and the vaccine can be stored for six-months at normal refrigerator temperatures). NZD/USD came within a whisker of reaching its highest levels in over two years during Monday’s European morning session at 0.6970.

However, following much better than expected US IHS Markit PMI data at 14:45GMT, the US dollar has seen a stunning reversal; as DXY rose back above 92.50, NZD/USD sharply dropped over 70 pips, to momentarily below 0.6900.

Prior to the data, the antipodes (AUD and NZD) had seen some minor downside on concerns over rising US/China tensions over the remainder of the US President Trump presidency following the release of a WSJ article which claimed that the Trump Administration is pushing for new hard-line measures against China to prevent them from employing economic coercion.

In terms of what lies ahead for both NZD and USD; FOMC Members Daly and Evans are set to speak on the economy, ahead of more Fedspeak and US consumer confidence data tomorrow, while NZD does not have any important domestic events to worry about until RBNZ Governor Orr speaks during Wednesday’s Asia session.

In the meantime then, pandemic news (be that regarding vaccines or lockdowns) is likely to be the major driver of NZD/USD.

Technical Levels of note for NZD/USD

 

Analysts at Citibank point out  Sentiment remains bullish in sterling with the combination of the most recent (positive) UK COVID developments, a possible Brexit announcement this week (or next) and a less negative rate impetus from the Bank of England together with more fiscal stimulus from the UK government. 

Key Quotes:

“There’s no doubt that GBP is cheap based on traditional PPP, which sits around 15% below its long term average. So arguably, despite the fact that the UK has lagged the G10 complex in terms of economic momentum throughout most of the year, the currency has been reasonably supported by its cheap valuation. Going forward, widespread distribution of a vaccine, and an agreement on a Brexit deal can support GBP. A Global economic recovery in 2021 as a result of a vaccine could see the UK begin to catchup. This also reduces the probability of the MPC moving policy rates into negative territory.”

“GBPUSD found support at 100dMA. The pair may challenge 1.3482, with support at 1.2982.”

  • The S&P 500 has eroded all of its pre-market gains amid choppy post-strong US PMI data trade.
  • As markets weigh up whether strong data might deter the Fed from acting, the S&P 500 trades within recent ranges.

US equity markets have been choppy in recent trade, with the S&P 500 initially rallying in wake of the US cash open at 14:30GMT, to then see a further boost to its highest levels since last Wednesday in wake of strong data, only for markets to than change their minds and send the index back towards last week’s lows in the 3550s and back into the red.

S&P 500 buffeted by vaccine optimism, US/China tensions and differing views on strong US data

S&P 500 futures spent the majority of pre-US market trade in the green, boosted primarily by an increasingly optimistic feel regarding the prospect for a global economic recovery in 2021 on the back of further good vaccine news.

AstraZeneca released an update on Monday, announcing that their vaccine has an average efficacy of 70% (a fair bit lower than Pfizer and Moderna’s vaccine), although one regiment of vaccine candidates, those who received a half dose followed by a second full dose one month later, saw average efficacy of 90%.

Importantly, storage conditions are more favourable than Pfizer’s vaccine; this vaccine can be stored at normal refrigerator conditions for at least six months (vs Pfizer’s vaccine, which needs to be stored at -70 degrees Celsius and Moderna’s which can be stored in refridgerator temperature for only one month).

S&P 500 futures took a small knock prior to the cash open on the news that the Trump administration is pushing for new hard-line measures against China to prevent them from employing economic coercion.

According to the Senior officials, they want to create an informal alliance of Western nations to jointly retaliate when China uses its trading power to coerce countries and was motivated by the economic pressure that China has been putting on Australia after the country called for an independent investigation into the origins of the Covid-19 pandemic.

However, S&P 500 futures managed to hold onto reasonable gains on the day heading into the not normally widely followed Markit PMI release at 14:45GMT.

Monday’s US Markit PMI release was different, however, triggering a very large market reaction, particularly in FX markets; given how strong the data itself was, as well as the fact that it showed US inflation starting to shoot up in November, USD has seen a stunning rally, with the Dollar Index jumping from around 92.00 to above 92.50.

Over the same period of time, the S&P 500 has swung between initial post-data gains (given the strong data boosting optimism about future earnings) to trading back to flat on the day.

Given the reaction in USD, it seems as though markets are taking the view that strong data and the prospect of higher than previously anticipated inflation heading into 2021 might set the scene for a less accommodative than hoped for Federal Reserve, something which is being taken as a negative stock market valuation.

S&P 500 continues to trade within recent intra-day ranges

The S&P 500 continues to trade within a roughly 3543-3583 range. Should the bears prevail and send the index below last Thursday and Friday’s lows around 3543, the door would be opened for a retest of the 3510-3520 area, which acted as significant support/resistance from the 5 to 11 November. Conversely, should the bull prevail and push the S&P 500 higher, resistance at the psychological 3600 mark would be important, as would the beginning of last week’s highs around 3620-3630.

S&P 500 futures four-hour chart

S&P 500 futures

  • USD/CAD gained traction and rose above 1.3100 during American session.
  • Crude oil’s upbeat performance helps CAD limit its losses.
  • Economic activity in US’ private sector continued to expand in November.

After dropping to 1.3050 area during the European trading hours, the USD/CAD pair reversed its direction and climbed to a daily high of 1.3107. As of writing, the pair was trading at 1.3098, where it was virtually unchanged on a daily basis.

Earlier in the day, rising crude oil prices helped the commodity-sensitive CAD gather strength against its rivals. Supported by the optimism that coronavirus vaccines will lead to a steady recovery in energy demand, the barrel of West Texas Intermediate (WTI) rose to its highest level in more than two months at $43.33. As of writing, the WTI was trading near $43, gaining 1.4% on the day.

DXY advances toward 93 after PMI data

On the other hand, the renewed USD strength allowed USD/CAD to push higher despite crude oil’s upbeat performance.

After the data published by the IHS Markit showed that the business activity in both the manufacturing and the service sector in the US continued to expand at an impressive pace in November, the greenback started to outperform its rivals.

US: Markit Manufacturing PMI improves to 56.7 in November vs. 53 expected.

Supported by a 3% increase in the 10-year US Treasury bond yield, the US Dollar Index (DXY) shot higher and touched a daily high of 92.80 after remaining stuck around 92 for the majority of the day.

Later in the session, Toni Gravelle, Deputy Governor of the Bank of Canada (BoC), and San Francisco Federal Reserve President Mary Daly will be delivering speeches.

Technical levels to watch for

 

  • US dollar soars across the board after US economic data.
  • EUR/USD drops from near key medium-term resistance to weekly lows.

The EUR/USD fell sharply almost a hundred pips in a few minutes from the 1.1900 area to 1.1799, hitting the lowest level since November 12. It then rebounded modestly and as of writing, it trades at 1.1815, 40 pips lower than Friday’s close.

The move lower took place on the back of a rally of the US dollar across the board following the release of the US Markit PMI preliminary report for November. The index showed an unexpected increase to the highest level in years.

The greenback started to gain momentum, making a dramatic reversal. The DXY stands now near weekly tops, after testing the 92.00 area hours ago. US yields hit fresh highs, helping the dollar.

From a technical perspective, the EUR/USD looks vulnerable and a consolidation under 1.1815 would set the scenario to more weakness. The rejection from levels above 1.1900, the upper limit of a wide range, could accelerate. A daily close under 1.1780 (20-day moving average) could target 1.1700.

Technical levels