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EUR/USD slides despite strong Germany data

 

Wednesday, December 07, 2022

The news shaping the markets today

The US Department of State said that the country was not encouraging Ukraine to attack beyond its borders. The US dollar index traded slightly lower this morning.


Australia’s economy grew 0.6% in the third quarter, following 0.9% growth in the previous quarter. This being the fourth straight quarter of growth in the economy lent support to the AUD/USD forex pair.


Japan’s Reuters Tankan sentiment index for manufacturers rose to 8 in December, from 2 a month ago. The index grew for the first time since August and sent the JPY/USD pair higher in forex trading this morning.


The Philippines reported growth in manufacturing production by 12.7% year-over-year in October, versus 12% growth in September. This being the highest growth in seven months lent support to the PHP/USD forex pair.


The American Petroleum Institute announced a decline in US crude stockpiles by 6.426 million barrels for the week ended December 2, higher than market estimates of a contraction of 3.884 million barrels. US WTI crude oil prices traded higher on the news.

 

What’s happening: The euro fell against the US dollar on Tuesday as traders digested recent economic data.

What happened: The US dollar extended gains from Monday’s session following the release of strong services data.

The euro recorded losses despite upbeat factory orders data from one of the major European countries.

Why it matters: The greenback had tumbled 1.3% last week after Fed Chairman Jerome Powell suggested a slowdown in the pace of interest rate hikes.

The US dollar recorded gains on Monday after an unexpected rise in the ISM (Institute for Supply Management) non-manufacturing PMI for November signalled resilience in the country’s services sector, despite the Federal Reserve aggressively increasing interest rates to curb inflation.

The services report followed upbeat nonfarm payrolls data on Friday, which increased prospects of the US central bank continuing to raise interest rates aggressively by 75 basis points at its upcoming meeting.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.3% to 105.58 on Tuesday.

The EUR/USD forex pair fell around 0.3% to 1.0466 on Tuesday, extending the 0.5% overnight decline, despite Germany reporting factory orders growth of 0.8% in October, beating the consensus estimates of 0.1% and up from September’s decline of 2.9%.

Investors gave up the euro after the release of the S&P Global Eurozone construction PMI, which fell to 43.6 for November, from 44.9 in the previous month, signalling contraction for the seventh straight month in the region’s construction activity. Construction PMI for Germany also declined to 41.5 in November, from 43.8 in October.

European stocks traded lower, sending the STOXX Europe 600 lower by 0.58% to 438.92 on Tuesday.

What to watch: Traders await economic reports on GDP growth and employment from the Eurozone today. The number of employed persons in the Eurozone is expected to increase by 0.2% in the three months to September. Analysts project the Eurozone economy to grow by 2.1% year-over-year in the third quarter.

The markets today

Gold will be in focus today after recording slight gains on Tuesday

Context: Gold prices edged higher on Tuesday after maintaining a downtrend in the previous session.

Details: Gold prices settled lower on Monday due to a recovery in the greenback after strong data on nonfarm payrolls increased speculations of the US Fed continuing to aggressively raise interest rates. Higher interest rates weigh on the yellow metal as they raise the opportunity cost of holding the non-yielding bullion.

Gold regained some ground on Tuesday, following a slight decline in the US dollar, which generally makes the yellow metal less expensive for foreign buyers. However, gold pared gains later in the session, with the strengthening of the US dollar. The greenback rose after the US reported an unexpected increase in services activity in November.

Traders still see more than a 90% chance of the Fed raising rates by 50 bps at next week’s policy meeting.

US released trade data on Tuesday, which showed the country’s trade gap rising to a four-month high of $78.2 billion in October, from a $74.1 billion gap in September. Markets also monitored news of easing covid-19 restrictions in China, the world’s largest gold consumer.

Gold for February delivery gained $1.10, or 0.1%, to settle at $1,782.40 per ounce on the Comex, while silver for March delivery slipped 8 cents to $22.34 an ounce on Tuesday. However, March copper added 2 cents to close at $3.82 a pound.

What are expectations: Traders will keep an eye on the US dollar’s movement and the release of major economic reports from the US and the Eurozone.

Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.56%, 0.67% and 0.41%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 137.11 and 137.36 Negative
AUD/USD – 0.6690 and 0.6698 Negative
Nasdaq 100 – 11507.34 and 11579.60 Positive
CAC 40  – 6658.29 and 6686.67 Positive
WTI Crude Oil – 73.94 and 74.50 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0474, 0.08%) Dow ($33,694, 0.18%) Brent ($79.56, 0.3%)
GBP/USD (1.2143, 0.11%) S&P500 ($3,951, 0.16%) WTI ($74.34, 0.1%)
USD/JPY (136.98, -0.06%) Nasdaq ($11,591, 0.22%) Gold ($1,785, 0.2%)

What else to watch today

South Africa’s foreign exchange reserves, Germany’s industrial production, UK’s house price index, France’s balance of trade, current account and foreign exchange reserves, China’s foreign exchange reserves, Italy’s retail sales, Singapore’s foreign exchange reserves, Spain’s consumer confidence indicator, US MBA mortgage applications, non-farm labour productivity, unit labour costs, crude oil inventories, gasoline stocks change, distillate stockpiles, total vehicle sales and total consumer credit, Brazil’s car production and new vehicle registrations, Russia’s foreign exchange reserves, Turkey’s treasury cash balance, Bank of Canada’s interest rate decision, as well as Argentina’s industrial production.


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