EUR/USD back to square one, in the mid-1.0600s

The initial spike to the 1.0660/70 post-Payrolls has quickly fizzled out, leaving EUR/USD trading in the 1.0650 area as markets continue to digest the US docket.

EUR/USD upside capped at 1.0690/1.0700

Spot keeps meandering the daily range following mixed results from the US labour market during November, with market participants still adjusting to the unexpected contraction of Average Hourly Earnings, a proxy of wage inflation.

Other than that, the pair is managing well to keep the trade within the daily range, with the upside so far capped by the 1.0690/1.0700 band, where are located today’s top and the 23.6% Fibo of the November drop, all amidst a generalized softer tone around the buck.

EUR/USD stays on its way to close the second straight week with gains, although further upside appears unlikely in light of the underlying and unabated so far bullish stance of the dollar.

EUR/USD levels to watch

The pair is now losing 0.08% at 1.0650 facing the next support at 1.0515 (2016 low Nov.24) followed by 1.0457 (2015 low Mar.16) and then 1.0332 (monthly low January 2003). On the other hand, a break above 1.0690 (high Dec.2) would target 1.0700 (23.6% of the November drop) en route to 1.0820 (low Mar.10).

GBP/USD seen consolidating ahead of another push lower – Scotiabank

Shaun Osborne, Strategist at Scotiabank, notes that they see GBP/USD consolidating ahead of another push lower, rather than rebounding at this point.

Key Quotes

“Sterling is little changed on the day despite some positive data releases. UK GDP was unrevised in Q3, in line with market expectations. But details revealed that investment remains surprisingly strong (considering Brexit uncertainties) while imports weakened. CBI retail sales data suggested much stronger-than-expected activity in November.”

“GBPUSD short-term technicals: neutral/negative—Cable is trading modestly higher on the week but most of those gains were seen Monday and trading has been virtually flat around 1.2450 since. Short-term charts suggest a firm floor intraday at 1.2420 and pressure on daily trend resistance at 1.2435/40. We still see Cable consolidating ahead of another push lower, rather than rebounding at this point. But may not preclude GBPUSD rising towards the 1.2550/1.26 area near-term before resuming its broader decline.”

Fibonacci Retracements Analysis for EUR/USD, and EUR/GBP on 16.09.2016

Fibonacci Retracements Analysis September 16, 2016

EUR/USD “Euro vs US Dollar”

 

АFibonacci Retracements Analysis for EUR/USD on 16.09.2016

Euro is still traded in the flat shape boundaries. Earlier market was unable to settle above correction point at 78.6% and there was bouncing from the bunch of local fibo-levels (1.1315). Consequently, in the short term perspective, we should expect price descending towards the area near 1.1180.

 

As we can see from 1 hour chart, yesterday price has bounced from correction point at 61.8%. So that we can expect this pair to move towards lower goals and break those minimums. Afterward, if there was a bouncing from anticipated price area, then we would expect current consolidation to be going on.

EUR/GBP “Euro vs British Pound”

 

Pair cross is still stuck in the local flat shape. Earlier, when the pair has been done with lower targets, there was a rapid bullish rally. In the short term we might expect a further upwards movement towards the bunch of upper fibo-levels near the price area at 0.8570.

 

On 1 hour chart we can see the nearest bearish goal that is the correction mark at 38,2%, which has been strengthened by the bunch of daily fibo-levels. Consequently, if there was an upwards bouncing from that price area, then we would consider further ascending as quite possible.

 

USD/MXN drops on Friday and erases weekly gains

The Mexican peso rose sharply against the US dollar on Friday and erased weekly losses. USD/MXN is about to end the week near 18.50 after trading close to 19.00 just two days ago.

The pair fell from 18.75 to 18.53 after the US employment report. Then it rebounded but remained below 18.70. It was about to end the week hovering around 18.55/60, around the same level it had a week ago.

During the week the US dollar reached 18.92, the highest level in three weeks but then it lost bullish momentum. Short-term technical indicators now favor the Mexican peso. The bearish correction of the USD/MXN could extend toward 18.40 where the 20-day moving average currently stands.

To the upside, the immediate resistance is seen around the 18.70/75 area and above the US dollar could again rise further toward the 19.00 handle.

 

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Gold struggling for direction, flat-lined around $1172

Gold was seen struggling for a direction and remained confined within a narrow trading range, with mild positive bias.

Currently hovering around $1173 region, all set to post fourth consecutive week of declines, the precious metal seesawed between tepid gains and minor losses on the back of mixed US monthly jobs report. Today’s headline NFP number came-in to show addition of 178K new jobs in November, slightly above 175K forecasted and up from October’s142K (revised lower from 161K previously reported). Meanwhile, the unemployment rate surprisingly dropped to 9-year low level of 4.6% but was negated by an unexpected contraction in average hourly earnings.

The data, however, was not enough to alter market expectations of a December Fed rate-hike action and hence, failed to provide any impetus to the yellow metal. However, a mild US Dollar retracement, primarily on the back of profit taking was seen extending some support to the dollar-denominated commodities – like gold.

Technical levels to watch

Immediate support is pegged at $1167-66 (session low) below which the commodity could drift to $1160 (yesterday’s multi-month low) ahead of $1152-50 next important support. On the upside, $1178 (session peak) now becomes immediate barrier, which if cleared could lift the metal towards $1182 en-route $1195-97 resistance area (weekly highs).

US Dollar fades the uptick, challenges the 101.00 handle

The US Dollar Index – which gauges the greenback vs. its main rivals – has now returned to the 101.00 neighbourhood, coming down from a failed attempt to advance further north of 101.20.

US Dollar offered after Payrolls

The index has rapidly retraced the bullish attempt to the vicinity of 101.20 following the monthly report on US labour market elaborated by the BLS.

In fact, Non-farm Payrolls saw the economy adding nearly 180K jobs during November, a tad above initial estimates, and the jobless rate ticking lower to 4.6% from October’s 4.9%.

However, the critical Average Hourly Earnings dropped 0.1% inter-month, pouring cold water over expectations of a sustainable pick up in US inflation wages.

In the meantime, DXY is so far closing the first week with losses after three consecutive advances, including a fresh 2016 top near 101.20 recorded on November 24, with a period of consolidation likely to follow ahead of the FOMC meeting on December 14.

US Dollar relevant levels

The index is retreating 0.04% at 100.98 facing the next support at 100.67 (low Nov.28) followed by 100.41 (20-day sma) and finally 99.38 (low Nov.14). On the other hand, a break above 102.19 (monthly high Apr.2003) would open the door to 102.68 (monthly high March 2003).

US stocks cautious after jobs report and ahead of Italian referendum

On the last trading day of the week, major US equity indices opened flat, with both the S&P 500 and Nasdaq Composite index on track for weekly declines.

During opening hour of trading, the Dow Jones Industrial Average was down nearly 30-point to 19,160, while the broader S&P 500 index was absolutely flat near yesterday’s closing level around 2,192. Meanwhile, tech-heavy Nasdaq Composite outperformed the broader indices and gained over 15-point to 5,267.

Major indices halted their post-US election rally over the past three weeks to record levels as investors seems to have turned cautious and remained concerned over the velocity of recent up-surge, which could have taken the markets ahead of the fundamentals. The concern was reflected in today’s US monthly jobs report that showed 178K new jobs added were added during the month of November, slightly above 175K expected. Meanwhile, average hourly earnings unexpectedly contracted by 0.1%, while reading for the previous two months were also revised lower. However, the miss in earnings growth number and downward revision of previous numbers were not enough to alter market expectation of a December Fed rate-hike

Investors on Friday were also cautious ahead of the Italian constitutional referendum on Sunday, where a ‘NO’ vote could lead to resignation of Italian Prime Minister Matteo Renzi, as well as the dissolution of Italy’s government and trigger a fresh bout of volatility in global financial markets.

Technical outlook

Carol Harmer, Founder at charmertradingacademy.com, notes, “Good short term support coming in @ 2187… 2183 is your next big level really…If we break below here 2175 would be the targeted area….Any longs currently are to be used short term only and we would like any correction now to hold below the 2204 area….”

She further writes, “2204 breaks there is scope for 2210/13 again…but sellers will be here to keep the market under threat…”

USD/RUB accelerates the downside below-64.00, session lows

The Russian currency is now intensifying its upside momentum vs. the buck, sending USD/RUB to the area of daily lows in sub-64.00 levels.

USD/RUB weaker on US data, oil

The bearish fashion around the greenback continues to weigh on the pair today, which is so far printing its third consecutive session with losses and deflating from weekly tops in the mid-65.00s.

The persistent selling mood around USD has intensified today after the US labour market report showed Average Hourly Earnings have unexpectedly contracted 0.1% during November, despite the economy has added almost 180K jobs and the unemployment rate dropped to 4.6%.

Collaborating with the downside in spot, the barrel of Brent crude has reverted the initial softer tone and is now posting smalls, adding to the recent rally post-OPEC deal on Wednesday.

USD/RUB levels to watch

At the moment the pair is retreating 0.32% at 63.76 facing the next support at 63.51 (low Dec.1) followed by 63.25 (low Nov.9) and then 61.95 (low Oct.25). On the other hand, a break above 64.52 (20-day sma) would expose 65.49 (high Nov.29) and finally 65.68 (200-day sma).

CAC 40 Holds Range to Close Out Week

Talking Points:

The CAC 40 has gapped lower on the open, to trade near the bottom of an ongoing consolidation range. This decline in the CAC 40 has occurred as a general decline in European equities markets is occurring this morning. Top losers for the Index includes BNP Paribas (-2.67%) and AXA (-2.43%). At this time only two CAC 40 components are trading higher, Unibail-Rodamco (+1.99%) and Pernod Ricard (+0.43%).

Technically, the CAC 40 is still trading in an ongoing range, with prices set to close this week’s trading by consolidating for the 15th consecutive session. As seen below, the technical outlook for the Index is little changed from Tuesday’s report. While gaining ground yesterday, the Index has failed to make a significant high over the November 10th high of 4,606.70. Also with this morning’s selloff, the CAC 40 has still failed to breach the November 11th low of 4473.40. Going into next week’s trading, if this consolidation pattern remains valid, traders may continue to look for range based trading opportunities.

CAC 40, Daily Consolidation Pattern

(Created Using TradingView Charts)

In the short term, the CAC 40 is trading below the final point of intraday support found at 4,537.50. This area is denoted graphically below as the S4 Camarilla Pivot. Despite prices retracing from daily lows, if the Index remains below this pivot it may suggest that the Index may attempt to again trend lower into the close.

In the event of a bullish price reversal, traders should look for the CAC 40 to trade through the S4 pivot and then move on the S3 pivot found at 4,549.0. A reversal of this nature would suggest that prices are holding in their broader consolidation pattern, and traders may look for the CAC 40 to trade back towards points of resistance. Intraday this includes, the R3 pivot at 4,572.3and the R4 pivot found at 4,583.7.

CAC 40, 30 Minutes with Pivot

(Created Using TradingView Charts)

— Written by Walker, Analyst for DailyFX.com

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Swiss Franc Moving Like Clockwork Despite Poor GDP Data

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Talking Points:

– Swiss GDP was flat in Q3’16, well below market expectations of an expansion to +0.3%.

– The SNB is highly unlikely to announce additional stimulus when it meets on December 15.

– EUR/CHF rallied yesterday but has quickly lost its gains.

Weak Swiss GDP data surprised markets Friday morning, coming in flat at 0.0% in Q3’16, after rising +0.6% in the previous quarter. The print was significantly below market expectations of an expansion to 0.3%. Growth was also down year-on-year, slowing to +1.3% from +2% in Q2, again missing forecasts of a +1.8% rise on the same period the previous year, according to the State Secretariat for Economic Affairs Friday.

The fall in Swiss GDP – this is the weakest performance in more than a year – bears out recent warnings from the Organization for Economic Cooperation and Development of the rising likelihood of Switzerland feeling the ill-effects of negative rates. However, the Swiss Bank last week said that it plans to keep interest rates in negative territory (they’ve been at a record low of -0.75 since November 2015) for the foreseeable future to prevent the franc from appreciating too far: Switzerland relies heavily on exports and it needs a weak currency so it’s not priced out of international markets.

Rates are therefore highly likely to stay where they are when the Swiss National Bank meets for a policy update on December 15. Indeed, the OECD said the Swiss authorities would need to adopt ‘macro prudential’ measures if it wants to stoke inflation.

There are also a plethora of political risks in the Euro-Zone approaching, such as Sunday’s Italian referendum and elections in Austria (also on Sunday), the Netherlands, France and Germany, that are set to put pressure on the Euro and keep the franc strong.

This is the likely reason that the EUR/CHF failed to maintain its rally yesterday, made on the back of a report that suggested the European Central Bank would extend its bond-buying program to March – as widely expected – but also signaled the program would eventually be tapered out. This was initially taken as Euro-positive, but the Euro remains in a bearish trend and liable to volatility owing to these said political risks. The Euro was unable to sustain its rally against the Swiss Franc and was last seen back at 1.0751.

Chart 1: EUR/CHF 1-hour Chart (November 29 to December 2, 2016)

 

Read more: Mixed December US Jobs Report Gives Few New Reasons for USD Bulls

by ig

Mixed December US Jobs Report Gives Few New Reasons for USD Bulls

Talking Points:

– Job growth came in just below expectations, still strong enough to not disrupt the overarching trend.

– The unemployment and undermployment rates fell on weaker labor force participation.

-EUR/USD whipsawed between 1.0625 and 1.0672.

Jobs growth in the United States in November remained solid at +178K, albeit slightly below expectations of +180K, as the economy appears ready for the Federal Reserve to tighten policy further. Although the October reading was revised lower by -19K to +142K, the September headline was boosted by +17K to +208K overall, leaving the two-month net revision at a mere -2K.

While off the +216K level of private payrolls that ADP saw on Wednesday, today’s reading of +178K is as middle of the road as they come. It’s important to keep in mind that, while markets psychologically hold +200K as the threshold, Fed officials like Janet Yellen and John Williams have spoken out saying +100K is enough to sustain the current unemployment rate.

The rest of the report painted a mixed picture of labor force strength. The labor force participation rate was a disappointment, falling to 62.7% from 62.8%, which led the unemployment and underemployment rates to fall. This is the second month in a row with a drop in the labor force participation rate. The unemployment rate fell from 4.9% to 4.6%, a nine-year low (and seventh largest drop in the UR in any month over the last 20-years), and underemployment fell markedly to 9.3% from 9.5%; the unemployment rate is at its lowest since August 2007 and and underemployment rate at the lowest since April 2008. Wage gains were also depressed, falling to 2.5% from 2.8%.

Continued strong jobs growth creates more pressure on the Fed to make its move to higher rates. However, depressed wage gains and weakening participation can give the Fed pause, As far as rate hikes are concerned, this report is a very mixed bag. However, strong economic data combined with the expectations for highly accommodative and expansionary fiscal policy can lead the Fed to raise rates sooner and faster to head off expected inflation. Fed funds futures continued to price in rate hikes in December 2016, June 2017, and December 2017 after today’s data, just as they did pre-release.

Here are the data driving the US Dollar this morning:

– USD Unemployment Rate (JUL): 4.6% versus 4.9% expected, from 4.9%.

– USD Change in Non-farm Payrolls (JUL): +178K versus +180K expected, from +161K.

– USD Labor Force Participation Rate (JUL): 62.7% from 62.8% previously.

– USD Average Hourly Earnings (JUL): +2.5% versus +2.8% expected, from +2.8% (y/y)

See the DailyFX economic calendar for Friday, December 2, 2016

Chart 1: EUR/USD 1-minute Chart (December 2, 2016 Intraday)

 

Immediately following the data, the US Dollar dropped against most major pairs as the internals of the report. EUR/USD traded in a choppy 50-pip range, settling at 1.0656 at the time this report was written.

Read more: Preview for November US NFPs and Outlook for US Dollar, FOMC

by  dailyfx

 

Preview for November US NFPs and Outlook for US Dollar, FOMC

Talking Points:

– December US NFPs look to come in around +180K; breakeven pace of jobs growth is around +100-120K, so even a middling, ‘Goldilocks’ would be good enough to drive down the unemployment rate.

– Fed funds futures continue to price 100% chance of Fed hike in December; only a severe miss will weigh on hike oddS – asymmetrical risk.

– Join the DailyFX Live Trading Room today at 13:15 GMT for live coverage of NFPs with Currency Analyst David Song.

The key issue surrounding today’s November US Nonfarm Payrolls report is whether or not the US labor market will give further indication that it is strong enough to justify multiple rate hikes in 2017. Current expectations for today’s data are modest (on the hotter side of ‘Goldilocks,’ but not too hot), with the Unemployment Rate expected to edge lower by one-tenth to 4.8%, and the headline jobs figure to come in at +180K.

The consensus expectation may be a bit soft. Wednesday’s November US ADP payrolls showed +216K new jobs created in November, easily beating expectations of an increase of +170K. Similarly, the November US ISM Manufacturing index gained to 54.1, signaling a faster pace of growth for a part of an economy that has been cast as struggling since the GFC . Unfortunately, we don’t have the latest US ISM Serviecs Employment subindex to help guide our expectations this time around (due out next week). However, in sum, these proximal trackers of the US labor market correlate to roughly a +175-185K pace of jobs growth.

The trend of 200K jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind. In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view. By the Atlanta Fed Jobs Growth Calculator, assuming a 4.8% longer term unemployment rate, the economy only needs +120k job growth per month to sustain that level.

See the DailyFX economic calendar for today for the rest of the data previews.

It thus seems that the risk to the US Dollar is asymmetrical today. With Fed funds odds pricing in a 100% chance of a rate hike this month, it might not matter if there is a ‘good’ report today. In the event of a good report, markets will focus on wage growth, to see if the Fed is ‘behind the curve.’ At best, the Fed rate expectations curve can steepen, but it is already pricing in two rate hikes through the end of 2017 (June and December), whereas it was only pricing in one after the last NFP report (just December).

Barring a blow out to the topside, it’s tough to see how the November US NFP report can result in anything better than reaffirming the greenback’s fundamentally bullish posture; there is more opportunity to be had for traders in the event of a weak NFP report.

See the above video for a technical review of the DXY Index, EUR/USD, GBP/USD, AUD/USD, USD/JPY, EUR/GBP, and GBP/JPY.

Read more: EUR/GBP Continuation, GBP/JPY Reversal Gathering Pace

— Written by Christopher Vecchio, Senior Currency Strategist

by dailyfx

 

The DAX Cracks, Targeting Post-Brexit Trend-line

What’s inside:

  • The DAX continues series of lower higher and lower lows
  • Trading beneath lower parallel of channel
  • Looking for the post-Brexit trend-line as a target

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On Wednesday, we looked at the DAX up close and made note of the lower highs, lower lows developing on the 60-minute time-frame. The market failed to push above resistance surrounding 10700 that day, then slipped back lower making good on continuing the series of lower highs and lower lows.

The short-term trend has been pointed lower within the confines of a channel dating back to the 11/14 high, but with the gap this morning it is now trading well below the lower parallel of the channel. On that we will look for the market to continue lower until meaningful support is met. Our eyes are focused on the trend-line rising up off the post-Brexit low as the next line of significance, which currently lies in the vicinity of ~10330/50. If that were to give way, then we would need to look to the 200-day MA, currently at 10197, then the 11/9 US presidential election gap-day low at 10175.

Given the current negative slant to the market, traders may want to look to stalling rallies on intra-day time-frames as potential opportunities for establishing shorts. The most solid line of resistance comes in on a retest of the bottom-side of the channel (~10475/85 as of now). A break back above wouldn’t immediately turn the trend around, but would be reason for caution on new short positions. As far as longs go, we have no interest until support is met and held with conviction.

DAX: Daily

 

Created with Tradingview

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Forex Technical Analysis 02.12.2016 (EUR/USD, GBP/USD, USD/CHF, USD/JPY, AUD/USD, USD/RUB, GOLD, BRENT)

Analysis for December 2nd, 2016

EUR USD, “Euro vs US Dollar”
The EUR/USD pair is still moving in the fifth ascending structure to reach the target at 1.0700. Possibly, the market may reach this target with the extension. The structure of the fifth wave implies that right now the price may be testing 1.0630. After that, the instrument may continue growing towards the above-mentioned target.

GBP USD, “Great Britain Pound vs US Dollar”
The GBP/USD pair has completed the descending impulse and right now is being corrected towards 1.2636. Later, in our opinion, the market may start falling to reach 1.2444.

USD CHF, “US Dollar vs Swiss Franc”
The USD/CHF pair is falling to reach the target at 1.0070. We think, today the price may return to 1.0136 and then fall towards the target. Later, in our opinion, the market may be corrected with the target at 1.0140.

USD JPY, “US Dollar vs Japanese Yen”
The USD/JPY pair is forming another descending impulse and reach 112.50 Later, in our opinion, the market may be corrected towards 113.50 and then continue falling to reach 106.50. An alternative scenario suggests that the instrument may grow to reach a new high.

AUD USD, “Australian Dollar vs US Dollar”
The AUD/USD pair has completed the ascending impulse and the correction . We think, today the price may continue growing towards 0.7550. In case the market reaches another low, the instrument may continue falling inside the downtrend with the target at 0.7100.

USD RUB, “US Dollar vs Russian Ruble”
The USD/RUB pair is expected to fall towards 62.00. After that, the instrument may return to 63.50 and then fall to reach the local target at 61.00.

XAU USD, “Gold vs US Dollar”
Gold is growing towards 1186. Later, in our opinion, the market may move downwards with the target at 1160 and then form another ascending structure to reach 1250.

BRENT
Brent is forming the third ascending wave with the target at 56.00. Possibly, today the market may fall towards 52.20 and then continue growing to reach the local target. After that, the instrument may be corrected towards 51.50 and then grow to reach 56.00.

 
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SCIENTIFIC PROOFS Versus World-wide WARMING

SCIENTIFIC PROOFS Versus World-wide WARMING

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Fibonacci Retracements Analysis 02.12.2016 (EUR/USD, EUR/GBP)

Analysis for December 2nd, 2016

EUR USD, “Euro vs US Dollar”
The EUR/USD pair is still consolidating. Yesterday, the price couldn’t reach the retracement of 23.6% and reverse to the downside. Consequently, in the nearest future the market may test the group of downside fibo-levels one more time.

As we can see at the H1 chart, yesterday the pair rebounded from the local retracement of 61.8% and started falling quickly. It’s highly likely that on Friday the price may continue falling to reach its downside targets.

EUR GBP, “Euro vs Great Britain Pound”
The EUR/GBP pair rebounded from its target area and may start a new correction. The closest target is the retracement of 38.2%. If this level is broken, the correction may continue towards the retracement of 50%.

At the H1 chart, the market is testing the group of downside fibo-levels again. If the price rebounds from this area, the pair may continue the current ascending correction towards the retracement of 38.2%. As a result, the market may break the local high quite soon.

 
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EUR/USD NFP Friday Technical Preview

Talking Points:

After declining as much as much as 114 pips in yesterday’s trading, the EUR/USD is still consolidating ahead of tomorrow’s NFP (Non-Farm Payroll) employment data release. Tomorrow news is expected in at a reported 180k, however any deviation from this value may increase market volatility and cause the EUR/SUD to break from its daily range.

Technically, the range is defined by the previous swing high put in place on November 28th at a price of 1.0685. This value should be considered as a point of resistance, and in the event that the EUR/SUD breaks higher it may suggest a shift from the pair’s ongoing daily downtrend. In this scenario, traders may consider looking for fresh buy entries as the US Dollar begins to sell off during the news.

EUR/USD, Daily Chart and Resistance

EUR/USD NFP Friday Technical Preview

(Created Using TradingView Charts)

In the event that prices breakout lower under 1.0518, the EUR/USD would be set to continue its ongoing downtrend. It should be noted here that the EUR/USD declined as much as 781 pips in the month of November. If this bearish scenario plays out, not only would the pair be trading at 2016 lows but also challenging the 2015 low of 1.0457.

The final scenario that should be considered ahead of tomorrow’s NFP event is that prices may continue to consolidate. Today’s trading marks the 10th day of consolidating price action, and if the EUR/USD fails to breakout higher or lower it may mean further consolidation still. In this scenario, traders may elect to trade the range based strategy of their choosing as long as support and resistance remain valid.

— Written by Walker, Analyst for DailyFX.com

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USD/JPY Rally Eyeing Key Resistance Confluence Ahead of U.S. NFP

Talking Points

  • USD/JPY rally eyeing near-term resistance confluence ahead of U.S. NFP
  • Updated targets & invalidation levels
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USD/JPY 120min

USDJPY 120min Chart

Technical Outlook: A breach above the weekly opening range yesterday shifted the focus higher in USDJPY with the advance eyeing key near-term confluence resistance into 115.48. The pair has continued to respect these slope-lines which were derived from a pitchfork extending off the August & September lows. Heading into tomorrow’s U.S. Non-Farm Payrolls report, the immediate outlook remains constructive while above the weekly open which converges with former slope resistance at 112.75.

From a trading standpoint, the long-bias is at risk into this resistance confluence with a breach above August low at 116.08 needed to fuel the next leg higher targeting 118.10 and the 76.4% retracement at 119.43. Heading into the release I would be looking to fade strength into structural resistance with a pullback likely to offer more favorable long-entries. Near-term bullish invalidation rests with the weekly opening-range low / May high at 111.45– a break below this levels risks a more meaningful pullback with such a scenario targeting initial support targets at 107.76.

USD/JPY Rally Eyeing Key Resistance Confluence Ahead of U.S. NFP

  • A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are net short USD/CAD– the ratio stands at -1.69 (37% of traders are long)- bullish reading
  • Long positions are 8.4% higher than yesterday and 3.2% below levels seen last week
  • Short positions are 1.7% lower than yesterday but 1.5% above levels seen last week
  • Market participation has continued to gather pace with open interest at 11.7% above its monthly average
  • While the current SSI profile remains constructive, it’s worth noting that the subtle shift in positioning towards the long-side suggests that the long-bias may be at risk heading near-term as price approaches confluence resistance with NFPs on tap tomorrow.

Relevant Data Releases

USD/JPY Rally Eyeing Key Resistance Confluence Ahead of U.S. NFP

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Other Setups in Play:

—Written by Michael Boutros, Currency Strategist with DailyFX

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FollowMichael on Twitter @MBForex or contact him at mboutros@dailyfx.com

NZD/USD Fails to Extend Near-Term Bullish Series Ahead of NFP Report

Talking Points:

GBP/USD Paves Larger Relief Rally Amid Easing Fears of ‘Hard Brexit.’

NZD/USD Fails to Extend Near-Term Bullish Series Ahead of NFP Report.

DailyFX

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2587

1.2696

1.2505

81

191

GBP/USD Daily

GBP/USD Daily Chart

Chart – Created Using Trading View

  • GBP/USD breaks out of a narrow range and looks poised for a larger relief rally as Eurogroup President Jeroen Dijsselbloem talks down the risk of a ‘hard Brexit’ and assures that the two regions can draw up new agreements to allow the U.K. ‘to enter the internal market and to allow trade to continue;’ the pound-dollar may extend the advance from earlier this week on a close above the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement) especially as the Relative Strength Index (RSI) threatens the bearish formation carried over from May.
  • The ongoing pickup in risk sentiment accompanied by the agreement within the Organization of Petroleum Exporting Countries (OPEC) to cut oil production may push Bank of England (BoE) officials to adopt a more hawkish tone at the last-2016 interest rate decision on December 15, and Governor Mark Carney and Co. may show a greater willingness to gradually move away from its easing-cycle as central bank officials warn ‘there are limits to the extent to which above-target inflation can be tolerated.’
  • Another failed attempt to close above 1.2630 (38.2% expansion) to 1.2680 (50% retracement) may pull GBP/USD back towards channel support, with near-term support 1.2370 (50% expansion), but a further advance in the exchange rate may spur a move back towards former-support around 1.2920 (100% expansion) to 1.2950 (23.6% expansion).

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

NZD/USD

0.7062

0.7105

0.7044

21

61

NZD/USD Daily

NZD/USD Daily Chart

Chart – Created Using Trading View

  • Failure to preserve the recent series of higher highs & lows undermines the near-term rebound in NZD/USD, with the pair at risk of facing further losses over the next 24-hours of trade as market attention turns to the highlight anticipated U.S. Non-Farm Payrolls (NFP) report, which is anticipated to show another 175K expansion in November; may see the kiwi-dollar continue to pare the rebound from 0.6971 should the labor report highlight an improved outlook for growth and inflation.
  • A broader shift in market behavior appears to be taking shape as NZD/USD breaks down from the upward trend carried over from earlier this year, but fresh remarks from the Reserve Bank of New Zealand (RBNZ) may limit the downside risk for the exchange rate as Governor Graeme Wheeler endorses a wait-and-see approach going into 2017; nevertheless, the central bank may keep the door open to further embark on its easing-cycle while appearing before Parliament’s Finance and Expenditure Committee on December 7 as the RBNZ warns ‘numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.
  • With the broader outlook for NZD/USD tilted to the downside, a break/close back below 0.7040 (50% retracement) may ultimately spur a more meaningful run at the next downside target around 0.6950 (38.2% retracement), which lines up with the July low (0.6951).

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

DailyFX SSI

  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD even after the British Pound ‘flash crash,’ with FX sentiment registering a 2016-extreme reading of +5.97 during the previous month, while traders have flipped net-long NZD/USD just ahead of December.
  • GBP/USD SSI sits at +1.17 as 54% of traders are long, with short positions 26.5% higher from the previous week even as open interest stands 3.1% below the monthly average.
  • NZD/USD SSI sits at +1.04 as 51% of traders are now long, with long positions 25.3% lower from the previous week as open interest stands 4.2% below the monthly average.
  • Even though the retail crowd remains net-long GBP/USD, sentiment continues to narrow from the 2016-extreme following the near-term advance in the exchange rate, with the SSI ratio marking the lowest reading since September.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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Read More:

Dollar Technical Analysis: DXY Polarity Point in the Making

S&P 500 Technical Update: Levels & Lines to Consider

Canadian Dollar Recovery to Fizzle If OPEC Fails to Deliver

EUR/USD Rallies as French Confidence Remains High Ahead of Next Primaries

— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David’s e-mail distribution list, please follow this link.

USD Weakness Persist Ahead of NFP Even as ISM Hits 2016 High

Talking Points:

ISM Manufacturing rose to match the 2016 high of 53.2

Economic data has continued to be strong overall

USD slowed its trek higher on the data, following huge gains over the past few weeks.

The ISM Manufacturing survey for November came in at 53.2 vs expectations of 52.5 and a previous reading of 51.9. This matches the strongest reading for 2016 and marks the fastest pace of growth since February of 2015.

ISM Prices Paid was flat at 54.5 and Construction Spending missed expectations of 0.6%, coming in at 0.5%, still significantly better than the previous reading of -0.4%. More optimism among manufacturers is a possible result of the election, as expectations rise of President-elect Trump working to assist the US manufacturing sector.

This report comes on the heels of upward revisions to 3Q GDP, increasing personal incomes, and skyrocketing consumer confidence. While manufacturing alone is not a hugely significant portion of the US economy, the combination of increasing optimism in manufacturing and positive signs in other parts of US growth-drivers instill an upbeat outlook for the region.

See the DailyFX economic calendar for Thursday, December 1, 2016

Chart 1: USD/CAD 1-minute Chart (December 1, 2016 Intraday)

USD Weakness Persist Ahead of NFP Even as ISM Hits 2016 High

Despite the better-than-expected ISM print, USD/CAD showed a limited reaction to the data, with the pair falling back from 1.3394 to 1.33650 following the relase of the data. Nevertheless, the bullish sentiment surrounding the greenback may gather pace going into the end of the year as the Fedeal Open Market Committee (FOMC) is widely anticipated to deliver a December rate-hike,

— Written by Omar Habib, DailyFX Research

For comments or questions, e-mail feedback@dailyfx.com

December NFP Preview: The First Test of Post-Trump Data

Talking Points:

– November was a big month for markets as the ‘Trump Trade’ drove some significant price action moves.

– Tomorrow brings us our first piece of post-Trump data out of the United States with the release of November Non-Farm Payrolls. The expectation is for 175k jobs to have been added to American payrolls for the most recently completed month.

– If you’re looking for trading ideas, check out our Trading Guides.

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November was a month for the ages with the massive market reversal that took place around-the-world on the results of the U.S. Presidential Election. If you would’ve offered 10-1 odds at the beginning of November that Donald Trump would be elected President of the United States, and then markets would rally to fresh all-time-highs, you probably would’ve still been hard-pressed to find anyone that would’ve taken that trade. As a matter of fact, one Irish bookmaker had even already begun to pay out on bets that Hillary Clinton would win the election, ahead of the election results, and ended up with quite a bit of ‘egg on their face.’

The lesson here is that markets are unpredictable, and sometimes brutally so. The longer a trader spends around the market, the more they learn this fact; the less they try to predict and the more they try to ‘trade.’ And a big part of this is managing risk and trying to go with the flow, because as a trader you’re, at most, a very, very small representation for a market as a whole. A big part of ‘going with the flow’ of the market draws back to analysis; looking for ways to align implied-probabilities for how a market may react with a given stimuli.

We have a really interesting stimuli unveiling itself tomorrow with the release of November Non-Farm Payrolls out of the United States. The analytical backdrop as we move nearer to the release is that basically everything-US has been strong since the Presidential Election. The Dollar has rallied up to fresh 13-year highs, the S&P 500 and DJIA have rallied up to even-higher all-time-highs, and rate expectations for 2017 and 2018 out of the U.S. have been ticking-higher as well (a hike in December is currently seeing odds near-100%).

December NFP Preview: The First Test of Post-Trump Data

Chart prepared by James Stanley

Throughout the month of November, U.S. data had been relatively strong with some significant high points. Earlier this week, we saw a blowout consumer confidence print of 107.1 versus an expectation of 101.5. PCE was released earlier this week to show the highest wage growth in the U.S. in over two years; jobless claims printed at 40-year lows, personal incomes at 6-month highs, GDP at 2-year highs and the jobless rate remains at 4.9%. All in all, this makes for a fairly robust fundamental backdrop that could certainly support a more hawkish rate hike path for the Fed in 2017.

There’s just one catch here: All of the data mentioned above was generated pre-Trump. The U.S. economy has shown signs of picking up steam even before this gargantuan rally around the U.S. Presidential Election began. So, the exuberance shown after the election combined with this improving fundamental backdrop for the U.S.; combined with the already-existing persistence of the Fed to try to ‘normalize’ policy all make for a situation that could continue to drive the U.S. Dollar higher, potentially for months.

December NFP Preview: The First Test of Post-Trump Data

Chart prepared by James Stanley

Tomorrow represents the first piece of significant post-Trump data that markets will be able to chew on with the release of Non-Farm Payrolls. At 8:30 AM ET, the number of Non-Farm jobs added in the United States for the month of November will be unveiled to markets, and the expectation is for 175k jobs to have been added to American payrolls during the month of the election. If this number comes out higher-than-expected, we could see some continuation in the USD-trade as traders price-in the prospect of an even more hawkish Federal Reserve at their next meeting in the middle of the month.

The big question here is how much might the top-side move extend? Given that we’ve already rallied quite a bit, it may take a significant beat, such as 200k+ to really provoke motivation to push prices even-higher. If, on the other hand, we get a soft print below expectations, this may provide some temporary relief to the burgeoning up-trend as traders take profits ahead of the weekend. This certainly doesn’t change the trend, at least in and of itself, unless this print comes out abysmally bad, such as we saw in June of this year for the May payroll numbers.

And this is where the analytical setup is most interesting: We have what could be a significant, ‘big picture’ theme here with the return of the ‘reflation trade.’ The fact that the U.S. is one of the few economies in the world looking at tighter policy options, whether that’s two hikes in 2017 or three, exposes the fact that the U.S. Dollar is one of the few currencies that may be driven-higher by more ebullient rate-hike expectations.

The only issue is that the move is a bit over-extended; and tomorrow’s NFP report can help with that. Should NFP come out weak tomorrow, leading to that profit taking, soft-Dollar scenario, traders can use that move-lower to position-in to longer-term long positions. On the chart below, we’re looking at a series of potential support levels that can be watched in the Greenback in the effort of ‘using the news,’ or to put it more simply, using super short-term bearishness to work-in to a longer-term theme of bullishness.

December NFP Preview: The First Test of Post-Trump Data

Chart prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

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Forex Technical Analysis 01.12.2016 (EUR/USD, GBP/USD, USD/CHF, USD/JPY, AUD/USD, USD/RUB, GOLD, BRENT)

Analysis for December 1st, 2016

EUR USD, “Euro vs US Dollar”
The EUR/USD pair is forming the fifth ascending structure to reach 1.0700. After that, the instrument may be corrected towards 1.0604.

GBP USD, “Great Britain Pound vs US Dollar”
The GBP/USD pair is still growing towards 1.2592. Later, in our opinion, the market may start falling to reach 1.2067.

USD CHF, “US Dollar vs Swiss Franc”
The USD/CHF pair has reached a new high. Being under pressure, today the price is falling and may reach 1.0070. After that, the instrument may be corrected with the target at 1.0140.

USD JPY, “US Dollar vs Japanese Yen”
The USD/JPY pair hasn’t been able to continue its descending structure and reached a new high instead. We think, today the price may form another descending impulse and reach 112.50 Later, in our opinion, the market may be corrected towards 113.60.

AUD USD, “Australian Dollar vs US Dollar”
The AUD/USD pair is still forming the descending structure with the target at 0.7369. Later, in our opinion, the market may form another ascending wave towards 0.7550. After that, the instrument may continue falling inside the downtrend.

USD RUB, “US Dollar vs Russian Ruble”
The USD/RUB pair is forming another descending wave towards 63.20. We think, today the price may consolidate for a while, break the range downwards, and then fall to reach 61.00.

XAU USD, “Gold vs US Dollar”
Gold has reached new lows and right now is growing towards 1200. Later, in our opinion, the market may move downwards with the target at 1180.

BRENT
Brent is forming the third ascending wave. Possibly, the market may continue growing to reach 55.95 and then fall towards 51.50.

 
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GBP/USD robust on the OPEC deal perhaps, resilient to dollar strength elsewhere

Currently, GBP/USD is trading at 1.2499, up 0.05% on the day, having posted a daily high at 1.2517 and low at 1.2420.

Sterling has been robust in the wake of renewed pressures from the greenback across the board after a series of good enough data this week that leaves a Fed hike fully on the table for December.

However, as analysts at Scotiabank noted, the data fro the UK is not so pretty, “UK consumers are less confident about the outlook; the November Gfk reading fell to -8, well below forecasts (-4), from -3 in October. This was the lowest level since July. All five subcomponents fell in the survey, suggesting consumers are “resolutely gloomy” on the outlook, according to Gfk. In addition, the BoE’s latest stress tests on local banks revealed a “fail” mark for RBS (forcing it to boost capital plans) and highlighted capital inadequacies at Barclays and Standard Chartered, according to Bloomberg.”

Meanwhile, the pound can garner some support on the oil price rallying over 9% today on the back of the OPEC accord that was earlier confirmed by Al-Sada, Oil rallies 9% on OPEC accord to cut production finally reached, confirmed by Al-Sada

GBP/USD short-term technicals: bearish

“Cable experienced another mini-meltdown earlier in the session when spot dropped below 1.25 and quickly fell to the low 1.24s without touching the sides. GBP/USD is holding near the low end of the post October consolidation band (support here is 1.2380) but still looks vulnerable to the downside. We see resistance at 1.2505/10 now and look to fade GBP gains,” explained analysts at Scotiabank.

GBP/USD levels

Spot is presently trading at 1.2499, and next resistance can be seen at 1.2517 (Daily High), 1.2528 (Yesterday’s High), 1.2548 (Weekly Classic R1), 1.2551 (Daily Classic R1) and 1.2598 (Monthly High). Support below can be found at 1.2493 (Daily Open), 1.2493 (Weekly High), 1.2476 (Hourly 20 EMA), 1.2470 (Daily Classic PP) and 1.2457 (Hourly 100 SMA). 

Fed’s Mester: Raising interest rates would be a "prudent step"

Fed Cleveland’s President Loretta Mester was on the wires, via Reuters, noting that raising interest rates would be a prudent step

Key headlines (via Reuters):

  • Prospects are likely higher for changes in fiscal, immigration, infrastructure and trade policies
  • Says ‘very uncertain’ how those changes will affect inflation, employment; ‘devil will be in the details’
  • Postponing hikes for too long would raise risks of recession and financial instability; fed not yet behind curve

Fed’s Powell: Rise in inflation compensation is a good thing

Fed’s Governor Jerome Powell crossed the wires last minutes, via Reuters, stating that an increase in inflation compensation is a “good thing”.

Key headlines (via Reuters):

  • Should a patient to see how fiscal policy unfolds
  • Focus on time and rate change may add to confusion
  • Communication should emphasize uncertainty of forecast
  • Dot plot changes over time reveal views on policy path
  • Dot plot isn’t useful predictor of near-term rate moves

Canada: Q3 GDP growth may not be sustainable – Wells Fargo

The Canadian economy expanded at a 3.5% rate during the third quarter. According to analysts from Wells Fargo, the fastest quarterly growth in Canada in two years may not be sustainable. They see downward pressure on the Canadian dollar (against the USD) amid monetary policy divergence between the Bank of Canada (BoC) and the Federal Reserve.  

Key Quotes: 

“The fastest quarterly growth rate in two years is due in part to a bounce-back in oil exports. Although 3.5 percent growth may not be sustainable, there are signs of bottoming in business investment.”

“Canada’s economy grew at an annualized rate of 3.5 percent in the third quarter, which was faster than expected. A bounce-back in exports after wildfires in Alberta temporarily disrupted oil production in the second quarter was a key factor and one that we had been expecting.”

“We do not expect that 3.5 percent is a sustainable rate of growth for the Canadian economy at present. An over-levered domestic consumer, pockets of frothiness in home prices, a lack of conviction in business spending and soft global growth are the main reasons why we are forecasting GDP growth of just under 2.0 percent for 2017 and 2018.”

“Although the BoC has offered some mixed signals in terms of the future direction of policy, by its own estimate the output gap (the difference between actual GDP and potential GDP) has been negative since 2008. On that basis, we expect the BoC to remain on hold at least through the middle part of next year. With the Federal Reserve expected to raise rates between now and then, our currency strategy group expects continued downward pressure on the Canadian dollar.

OPEC deal: More important for OPEC’s reputation than the oil market – Danske Bank

The Organization of the Petroleum Exporting Countries (OPEC) agreed to cut output today, from the beginning of 2017. According to analysts from Danske Bank, the deal means more to the OPEC that to the oil market. They see crude oil prices heading higher during 2017. 

Key Quotes: 

“OPEC will aim to lower output to 32.5mb/d by 1 January 2017. The deal is contingent on non-OPEC producers cutting production by 600kb/d. According to OPEC, Russia has already committed to delivering 300kb/d in cuts. OPEC will have a meeting with non-OPEC producers to finalise this on 9 December.”

“The lack of real commitment from OPEC today (deal is contingent on meeting with nonOPEC producers) highlights that present conditions make it difficult for OPEC to succeed as a cartel. OPEC’s position on the oil market is under pressure from the emergence of alternative fuel sources, large shale-oil reserves in, e.g. the US, staggering world oil demand under pressure from weak global economic growth and a strong dollar and finally lack of compliance within OPEC.”

“The failed attempts at a deal over the past year as well as the fragile state of public finances in most OPEC member countries mean that the oil market is likely to test OPEC compliance with the deal. Hence, if it is implemented it may push oil prices a bit higher.”

We look for oil prices to head higher in 2017. This is based on our expectation of higher global economic growth and inflation, in particular in the US economy, the world’s leading oil consumer, which should support growth in oil demand. In one year’s time, we also look for the USD to trade at a lower level than today, which supports a higher oil price. We expect the price of Brent crude to rise to USD58/bl in Q4 17.”

India’s Rupee Faces Further Weakness As Demonetisation Trumps GDP

Talking Points

Indian third-quarter GDP print misses estimates but still grows 7.3% year-over-year

• Rupee under pressure from government’s ‘Demonetisation’ move and Trump win

• Reserve Bank of India under pressure to announce a further 0.25% rate cut next week

See the DailyFX Analysts’ 4Q forecasts for Crude Oil, the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

Indian GDP rose 7.3% year-on-year in the third quarter, up from 7.1% in the previous quarter, according to official figures released Wednesday. That’s below the 8% expected by analysts. An interest rate hike is a growing in possibility when the central bank meets next week – particularly in light of the government’s demonetization measures which are likely to curb consumer spending and crimp GDP growth further.

At the beginning of this month, the Indian government announced a shock move to pull 86% of the country’s currency out of circulation in an attempt to combat corruption, back money and terrorism. Prime Minister Narendra Modi banned all 500 and 1,000 Rupee notes in the country, of which there were around 18 billion [notional?].

That decision heaped further pressure on the Indian Rupee, which like many emerging market currencies is suffering from the prospect of next month’s Fed rate hike sucking money away from emerging markets.

The Rupee hit a new 39-month low on Monday versus the Dollar when USD/INR hit a high of 68.4700, although it’s since retreated to trade at 68.3800. It was trading at around 66.5 before the Trump win.

India’s new central bank Governor Urjit Patel is now under pressure to announce further easing when the Reserve Bank of India meets next week on December 6 and 7. In October the bank cut its benchmark repo rate to 6.25% from 6.50% – the lowest level for nearly six years – in an effort to boost the economy.

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GBP/JPY Technical Analysis: Turning Trends Like a Rolling Stone

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Talking Points:

In our last article, we looked at the recently re-fired up-trend in GBP/JPY as the pair was bullish and bursting to fresh 4-month highs. A key level of this move was at 138.83, as this was the September swing-high in the pair and had helped to show short-term resistance as GBP/JPY was driving-higher. As we wrote in our last article, this level could be an opportune area to look for support to develop in the effort of the bullish continuation entry; and after GBP/JPY set another fresh high at 141.75 in the days following, a retracement to start this week brought price action right down to that support level before another leg of the up-trend got under way. We wrote about this in yesterday’s Market Talk article entitled, JPY: How to Work With the Trend That Barely Bends.

GBP/JPY Technical Analysis: Turning Trends Like a Rolling Stone

Chart prepared by James Stanley

To put matters in scope: It was only 7 weeks ago that we were calling GBP/JPY the ‘race to the bottom’ as weakness was showing in both currencies. The Bank of England wanted a weaker-GBP to help offset Brexit risks, and the Bank of Japan had just changed their stimulus policy to target yields rather than rigid amounts of bond purchases. Both of these had the potential to drive longer-term weakness into each currency; but after the BoE began to take notice of the rising inflationary forces, the prospect of even-more dovishness out of the U.K. began to look less-likely. Those prior down-trends in GBP have reversed into strength; and while the U.S. Dollar puts in a near-historic move throughout much of November, GBP has held its own: GBP/USD has developed a fairly consistent range.

But when this GBP-strength has been coupled with JPY-weakness, we’ve had some real dynamic price action to work with. GBP/JPY is up over 12.8% since the lows of election night, just three weeks ago. The pair is continuing to run-higher, working on another fresh 4-month high as of this writing, with the ‘post-Brexit’ swing-high at 143.23 nearing.

As we wrote in our last article, approach here should be one of prudence. Yes, this has been a fantastic move, but after such a volatile pair runs so hot, so quickly, traders will want to be cautious of chasing and instead, wait for some element of support to show so that risk can be properly managed.

For re-entries, levels at 140.95, 140.00 and again at 138.83 could be interesting. Should prices break below 137.50, the bullish approach would likely come into question, at least for the time being. On the resistance side of the coin, the post-Brexit swing-high is at 143.32, and at 145.00 we have a major psychological level. Each of these can be ideal places to begin plotting profit targets and/or looking for retracement of the bullish move in the effort of catching a support entry in the periods following. After those resistance levels, areas at 147 and 148.50 become interesting for next-resistance.

GBP/JPY Technical Analysis: Turning Trends Like a Rolling Stone

Chart prepared by James Stanley

— Written by James Stanley, Analyst for DailyFX.com

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Contact and follow James on Twitter: @JStanleyFX

Continued Brazil GDP Slump Threatens further Rate Cuts, Real Slide

Talking Points:

Brazil’s GDP shrank 0.8% in the third quarter, matching forecasts

• The country’s prolonged recession – now 8 quarters long – could become the worst in its history

• The central bank is widely expected to cut interest rates a further 25 basis points this week

Brazil’s economy shrank 0.8% in the third quarter, statistics agency IBGE reported on Wednesday. Growth was down a seasonally adjusted 2.9% compared to the third quarter of 2015.

The data are not as extreme as economists forecasted, but still hammer home the fact that Brazil remains in its worst recession of modern times. The government had hoped a rise in consumer and business confidence after the impeachment of former president Dilma Rousseff would lead Brazil out of its economic funk. But a persistent weakness in spending by both critical groups remains.

Government and economists have cut growth targets for next year to around 1%. Some warn that Brazil will experience another year of recession in 2017, which would mark the worst ever slump in Latin America’s largest economy.

All of this means that the country’s central bank, the Banc Central do Brasil, is widely expected to cut interest rates by a further 25 basis points to 13.75% when it meets later the same day. It had cut rates for the first time in four years to 14% in October in an attempt to boost growth amid signs of slowing inflation.

Another rate cut will put further pressure on Brazil’s currency, the real, which has already been a big loser since Donald Trump won the US Presidential election earlier this month. His unexpected triumph spells trouble for emerging markets such as Brazil, as concerns about Trump’s protectionist policies weigh on emerging-market assets. Trump’s ‘America First’ policies may in turn mean a quicker pace of monetary tightening by the Federal Reserve. Indeed, the markets reckon there’s a 100% chance the Fed will raise US rates at its next meeting on December 14.

USD/BRL made its highest gain since June in the aftermath of the Trump victory, rising to as high as 3.4478. The pair has since dropped a little to trade at 3.3970.

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OPEC Reaches Deal To Cut Production; Brent Crude Jumps Over 12%

Talking Points:

OPEC members agreed to cut by 1.2 million barrels per day.

OPEC is likely to reach out to non-OPEC members to coordinate a deal.

Crude Oil jumped over 12% on the news and earlier reports that such a deal was in the making..

OPEC members ended months of keeping markets on edge by securing a deal to cut output by 1.2 million barrels a day. This cut brings the group’s total production down to 32.5 million barrels a day, beginning January 2017. The cut is split across most members of the group, here is a breakdown:

Saudia Arabia: Cut 486,000 B/D

Algeria: Cut 50,000 B/D

Ecuador: Cut 26,000 B/D

Angola: Cut 87,000 B/D

Gabon: Cut 9,000 B/D

Iraq: Cut 210,000 B/D

Kuwait: Cut 131,000 B/D

Qatar: Cut 30,000 B/D

UAE: Cut 139,000 B/D

Venezuela: Cut 95,000 B/D

*Iran: Allowed to increase production by 90k B/D

**Libya and Nigeria exempted from production deal

OPEC also mentioned that they are likely to reach out to non-OPEC members, saying that the final production cut agreements have to include both OPEC and non-OPEC producers. OPEC members say they are targeting a price range of $50 to $60 a barrel.

Russian Energy Minister Alexander Novak spoke later in the day saying that Russia would gladly join OPEC in cutting production, willing to cut up to 300k barrels per day. Non-OPEC members meet in 10 days to discuss cooperation with OPEC in production cuts.

See the DailyFX economic calendar for Wednesday, November 30, 2016

Chart 1: Brent Crude Oil 1-hour Chart (November 30, 2016 Intraday)

OPEC Reaches Deal To Cut Production; Brent Crude Jumps Over 12%

Brent Crude had been tracking higher since late last night, when rumors first began to circulate that OPEC may reach a deal today. It has rocketed higher over the day, as news came out of the deal and by how much the cut will be. Late last night it dipped below $46 and, by the time of writing, was around $51.41.

— Written by Omar Habib, DailyFX Research

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