Forex Signals US Session Brief, Dec 30 – USD Weakness Dominates Markets, as Traders Square Positions Before the New Year
Markets have been pretty quiet for more than two weeks, but today they are moving against the USD and in the direction of safe havens
Markets have been pretty uncertain for a couple of weeks, after the UK elections and the agreement on the Phase One deal between US and China, both of which took place at the same day. We saw a surge in risk assets that day, but the optimism faded quickly, since the Phase One deal didn’t offer much, apart from agricultural purchases, while the UK is stil headed out of the EU with no trade deal in sight, which would mean hard Brexit. So, traders were uncertain what position to take in the previous weeks, as the global economy continues to weaken, despite the initial optimism.
Today though, traders are finally picking a side, leaning on safe havens before the end of the year, just in case something important happens next year, such as another escalation of the trade war, or an actual war, who knows. As a result, GOLD , the JPY and the CHF have been bullish. Although risk currencies have been climbing higher, stock markets have been retreating. This points to some pronounced USD weakness today, so it seems like traders are offloading some of their buy positions from earlier in the year, since the Buck has been mostly bullish in 2019. Perhaps, it will resume the larger bearish trend next year, when this phase of selloff is over.
The European Session
- Spain CPI Inflation Report – The CPI (consumer price index) report from Spain was released early this morning. Inflation cooled off considerably in September and October, but picked up again in November. Although, it posted a 0.1% decline this month, as opposed to a 0.1% increase expected. CPI YoY also missed expectations of 0.9%, increasing by 0.8% instead, although that is twice the amount we saw in November.
- Spain GDP Report – The GDP report was also released this morning from Spain. The final reading for the GDP in Q3 remained unchanged at 0.4%, as expected. But, the annualized number, missed expectations of 2.0%, ticking lower to 1.9% instead.
- BOE’s Carney Moving From Monetary Policy to Climate Change – BOE governor Mark Carney said earlier today that the financial sector must act faster on climate change. Financial services have been too slow to cut investment in fossil fuels. A delay could lead to a sharp increase in global temperatures. The concern is whether we will spend another decade doing worthy things without it being enough. Carney is already pushing his future agenda on markets, since he is due to become the UN special envoy for climate change next year when he steps down from his post as BOE governor.
- More Progress for the Phase One Deal – Top China trade negotiator Liu He will lead a trade delegation to Washington on Saturday, according to a SCMP report. They agreed on this deal earlier this month, which helped the sentiment in financial markets and now they will make it official. Although, markets are not satisfied with this deal.
The US Session
- Schnabel, Another Hawk at the ECB – The new executive board member Isabel Schnabel has staked out the hawkish ground on the governing council but her latest comments to Boersen-Zeitung don’t really touch on the outlook or monetary policy today. She said that central bank should clarify its inflation goal. The band around inflation goal might not bring clarity and the view that ECB policies will worsen the next crisis is ‘exaggerated’.
- US Home Sale Inventories – The report released last month showed a 0.2% increase in inventories for October, which was revised lower to 0.1% today. For November, inventories were expected to increase by 0.2%, but fell flat at 0.0% instead. Retail inventories came in at -0.7% versus +0.1% estimated and 0.1% prior, revised down from +0.3%. Retail inventories excluding autos came in at -0.2%, while wholesale inventories YoY increased by +3.2%.
- US Chicago PMI– The US economy has weakened considerably in the last several months and manufacturing has fallen into contraction. The Chicago PMI indicator shows that the activity from business managers has fallen into contraction as well, declining to 43.2 points. It was expected to show an improvement last month and increase to 47.2 points, which would still mean contraction. The situation improved, but it still missed estimates, coming at 46.3 points. Today, the actual number beat expectations, coming at 48.9 points.
Trades in Sight
Bullish AUD/USD Again
- The trend has ben bullish for more than 2 months
- The upside is gaining further momentum
- MAs are pushing the price higher
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The uptrend is picking up pace further
AUD/USD turned bullish in the first two weeks of this month, as the USD turned bearish, on softer US ISM manufacturing report, which showed that this sector fell deeper into contraction during November. The upside momentum faded and in the third week this pair retraced lower. But, the sentiment improved further after US and China agreed on Phase One deal, helping risk assets, such as the stock markets and commodity Dollars. As a result, AUD/USD has been bullish for about a week. The uptrend has been pretty straightforward.
The price has bean leaning on the 20 SMA (grey) on the H1 chart, which has been providing support on pullbacks and pushing the price higher. This shows that the trend is pretty strong. The other moving averages have been helping as well, when the retrace was deeper, so they are pushing this pair higher.
In Conclusion
The year-end cash flow has been sparking some life in markets, especially in safe havens which have been climbing higher since the last few trading sessions. The USD is also declining fast today as traders close some of their long term USD buy positions, so the price action is a bit irrational now and will continue to do so until next year.
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