US consumers continue to drive the economy as retail sales increased again this month

US Session Forex Brief, Dec 14 – USD the Only Game in Town After Very Disappointing Eurozone Figures

Posted Friday, December 14, 2018 by
Skerdian Meta • 4 min read

The US Dollar has been on a bit of a retreat this week as it retraced lower. But the reasons to buy the other instruments have fallen one by one like dominoes. GBP/USD surged earlier this week as Theresa May survived the first attempt to overthrow her as the leader of the Conservative Party and the UK altogether. But, moving averages provided solid resistance yesterday and Brexit has just been getting worse as the UK officials try to find a solution at the EU again. So, GBP/USD has lost around 140 pips in the last few sessions.

Commodity Dollars were on a slight uptrend as well this week. But, yesterday’s report from China showed that foreign direct investments had fallen by 1.3% year-to-date. Today, industrial production and the retail sales missed expectations by some wide margin. As a result, the Aussie and the Kiwi turned bearish today losing around 100 pips in the process.

Later when the European session started, we saw some terrible economic numbers from the Eurozone. German and the whole Eurozone manufacturing and services sectors cooled off again heading towards contraction. The French services and manufacturing production contracted this month as the PMI indicator fell below the 50 level. EUR/USD is now nearly 100 pips lower as well.

Safe havens are under attack as well, as the sentiment remains mildly positive in financial markets. USD/JPY has slowly been grinding higher during the European session, while Gold is getting crushed, having lost more than $10 today.

The European Session

  • Brexit Saga UK’s David Lidington commented early in the morning that the EU summit yesterday was a welcome first step. He added that EU leaders gave a “very, very clear” commitment to negotiate trade deal quickly. A trade deal would ease the concerns for the backstop lasting indefinitely. But DUP Party leader Foster is not happy that the EU is not giving legal assurance for the backstop. She said in a tweet that the EU is doing what they always do. Although, the UK Government spokesperson Allison Donnelly seemed confident to get solutions on the backstop. She added that the EU summit is just the start of the process on the backstop and there is a shared determination to find a way through.
  • European Manufacturing and Services Reports – The German manufacturing PMI for December missed expectations coming at 51.5 points against 51.8 expected while services PMI declined to 52.5 points from 53.3 previously. The Eurozone figures were pretty much in line with the German ones. The Eurozone manufacturing PMI came at 5.4 points against 51.9 expected, while the services PMI came at 51.4 points, down from 53.4 points last month. Although, the numbers from France were the worst as they showed that these sectors fell into contraction this month, with manufacturing PMI coming at 49.7 points and the services PMI coming at 49.6 points.
  • Spanish CPI Inflation – The consumer price index (CPI) declined by 0.1% in Spain as anticipated and the HICP declined by 0.2%. Although, the annualized numbers for both these inflation indicators remained unchanged at 1.7%.
  • ECB Officials Speak – We had a number of ECB officials give speeches after the disappointing Eurozone economic numbers this morning and they mostly contradicted each other. ECB Vice President Luis De Guindos said that “the ECB needs to be cautious, markets are well-aligned with our policy and we have to keep our optionality at the maximum level”. ECB member Ewald Nowotny popped up a bit later saying that risks to growth are broadly balanced, inflation is seen trending in-line with ECB goal and core inflation trend is going in the right direction. Then came the turn for ECB’s Vasiliauskas who said that risks are seen tilted to the downside, Eurozone risks are mixed, warrants monitoring, risks are changing rapidly and we need more time to figure out what’s happening. ECB’s de Coss added a while ago that the unconventional monetary policy is here to stay. Although, they are removing the QE programme, but I guess he is talking about interest rates.
  • China to Remove Part of tariffs on US Cars – The Chinese increased the tariffs on US cars from 15% to 40% after the White House placed tariffs on Chinese goods. But, the two giants reached an accord on the G20 summit in Argentina two weeks ago and now China is removing the extra 25% tariff, but the 15% tariff will remain though.

The US Session

  • US Retail Sales – The US core retail sales grew by 0.2% in November as expected. Retail sales in total grew by 0.2% as well, against 0.1% expected. Sales in the control group though rose by 0.9% against 0.4% expected. Last month’s core sales were revised higher to 1.0% from 0.7% previously and the main retail sales were revised higher to 1.1% from 0.8% previously.
  • US Industrial Production US industrial production jumped 0.6% higher in November against 0.2% expected. Although, last month was revised lower from 0.1% to -0.2%, but this is still a pretty good report nonetheless.
  • US Flash Manufacturing – Flash manufacturing missed expectations last month in the US. Today’s report showed that this month the flash manufacturing declined once again. Expectations were for a reading of 55.1 points, don from 55.3 points previously, but it missed expectations coming at 53.9 PMI points.
  • US Flash Services – US flash services missed expectations last month and they did the same this month, just like the flash manufacturing PMI. Flash services were expected to remain unchanged at 54.7 points but it declined to 53.4 points.
  • US Business Inventories – US business inventories are expected to double in size compared to last month. Last month they increased by 0.3% while this month the buildup is expected to increase by 0.6%.

Trades in Sight

Bearish AUD/USD

  1. The trend has turned bearish for AUD/USD
  2. The Ascending channel has been broken to the downside
  3. Fundamentals turned bearish

The channel has finally been broken

A while ago we opened a sell forex signal after the one we had on this pair from last week closed last night as AUD/USD broke the bullish channel after the Chinese data missed expectations. The price is oversold now but the fundamentals are driving this pair now and they have turned bearish for AUD/USD. The US retail sales report were pretty positive earlier today, so the price should resume the bearish trend soon.

In Conclusion

The trade war between China and the US is drawing to a close as China promised to remove some of the tariffs on US cars. Although, the sentiment is not shifting to positive. But, the safe havens are losing their appeal pretty quickly, so that is a sign that the risk sentiment might turn positive once again.

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