Thursday 18th December: European Open Briefing

Global Markets:

  • Asian stock markets: Nikkei up 2.25 %, Shanghai Composite gained 0.45 %, Hang Seng rose 0.80 %, ASX rallied 1 %
  • Commodities: Gold at $1199 (+0.40 %), Silver at $16.03 (+0.60 %), Crude Oil at $56.70 (-0.20 %)
  • Rates: US 10 year yield at 2.136, UK 10 year yield at 1.761, German 10 year yield at 0.594

News & Data:

  • New Zealand GDP 1.0 % q/q, Expected: 0.7 %, Previous: 0.7 %
  • New Zealand GDP 3.2 % y/y, Expected: 3.2 %, Previous: 3.2 %
  • SAFE’s Wang: China to continue to promote forex reform, to keep Yuan rate basically stable to promote reform
  • Yellen Makes It Clear That Fed’s Patience on Rates Has Limits (BBG)
  • Putin Seeks to Soothe Ruble Worries at News Conference (BBG)

Markets Update:

Fed Chair Yellen has signaled yesterday that a rate hike should come in the second half of next year and that rates would probably be raised gradually therafter. The FOMC removed the “low rates for considerable time” phrase and replaced it with “the Fed is being patient”. Further, the central bank noted that inflation continues to run below the committee’s longer-run objective, partly due to energy price declines. However, the Fed said it expects inflation to raise gradually towards 2 % as the labor market imrpoves and the effects of lower energy prices dissipate. While the interpretations of the FOMC statement & press conference were mixed, the US Dollar rallied on this. Meanwhile, global equities all bounced after the FOMC, as well as precious metals & crude oil.

Overnight, the major pairs consolidated in tight ranges post-FOMC. USD/JPY briefly traded above 119.00 at the Sydney open, but fell back to 118.35 in the course of the session. While short-term techs have changed to positive after the strong bounce off 115.50 & daily close > 118.00, liquidity will only get worse as we head towards the Xmas holiday, so unless risk sentiment improves significantly, a choppy consolidation between 116 and 120 seems more likely than a continuation of the uptrend.

NZD/USD jumped to 0.7745 in the early NZ session after better than expected GDP data. The move was driven mostly by fast-money names and quickly retraced. The pair hit a low of 0.7680 at the Tokyo open , bounced from there and is now consolidating again around 0.7720. Similar price action in AUD/USD. A test of the 2010 low of 0.8066 seems imminent now. Meanwhile, USD/CAD was caught in a tight 20 pips range. Aside from that quick drop to 1.1560 yesterday, price action in the pair has been surprisingly calm, despite the high volatility in Oil. Imminent resistance seen at 1.1670 and then at 1.1724 (Summer 2009 peak).

Upcoming Events:

  • 09:00 GMT – German IFO Business Climate (105.4)
  • 09:00 GMT – German IFO Current Assessment (110.3)
  • 09:00 GMT – German IFO Business Expectations (101.)
  • 09:30 GMT – UK Retail Sales (0.3 % m/m, 4.2 % y/y)
  • 09:30 GMT – UK Core Retail Sales (0.4 % m/m, 4.5 % y/y)
  • 13:30 GMT – US Initial Jobless Claims (295k)
  • 15:00 GMT – US Philadelphia Fed Manufacturing (26.6)

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