Time of writing: 03:30 GMT

The big picture

USD lower as data backs up Yellen The dollar was broadly lower Monday morning against both G10 and EM currencies after Friday’s weak US data corroborated Fed Chairman Designate Janet Yellen’s emphasis on the need for Fed policy to remain accommodative. The Empire State manufacturing survey for November fell to -2.21 from +1.52, confounding market expectations of a rise to +5.00, while US industrial production declined slightly in October instead of rising modestly as the market had expected. Within the IP figures, the fall in capacity utilization despite an increased in factory output may reassure the Fed that there is no risk of overshooting its inflation target and the risks to keeping rates lower for longer are minimal. As a result, Fed Funds expectations continued to decline and the dollar came off further.

The main support to the dollar has been changing expectations for monetary policy elsewhere. The ECB has certainly taken a more accommodative stance with its surprise cut in rates recently, while the market expects the Bank of Japan to ease further at some point as growth there slows. By contrast, the pound is likely to be well supported after the Bank of England last week revised up its growth and, crucially, its employment forecasts. That combination suggests GBP/JPY is still worth looking at from a fundamental point of view.

The economic calendar is quite light today. In the EU, the trade and current account balance for September will be announced; the trade surplus is expected to rise to EUR 13.0bn from 12.3bn in October (SA); there’s no forecast for the current account balance. This indicator is not particularly market affecting but in fact the region’s large current account surplus (now averaging EUR 15.8bn a month) is probably one of the main reasons EUR/USD has been so remarkably steady this year. In the US, the National Association of Homebuilders market index for November is expected to remain steady at 55. The Treasury International Capital data on US capital flows for September will also be released.

For the week as a whole, the highlight is likely to be Wednesday, when the minutes from the most recent FOMC and Bank of England meetings will be released and Fed Chairman Bernanke will speak. Thursday will also be busy with a Bank of Japan Policy Board meeting and the preliminary purchasing managers’ indices for November for China, the Eurozone, Germany, France, and the US. The ZEW and Ifo indices, plus the revised and more detailed Eurozone GDP figures, may affect views on the euro during the week, while in the US, retail sales and consumer prices, the JOLTS labor market survey and existing home sales are among the data highlights.

The Market

EUR/USD

• EUR/USD moved higher on Friday reaching the key 1.3500 (R1) level near the prior long-term uptrend line. Currently the pair is finding resistance at that area. If the bears are able to maintain the price below 1.3500 (R1), they might extend their move, breaking the light-blue support line. On the other hand, if the bulls achieve a break above that critical level, they may drive the battle to the next resistance at 1.3600 (R2).

• Support: 1.3389 (S1), 1.3321 (S2), 1.3257 (S3)

• Resistance: 1.3500 (R1), 1.3600 (R2), 1.3700 (R3).

USD/JPY

• USD/JPY moved sideways, remaining between the key 100.00 (S1) level and the resistance of 100.60 (R1). I would expect the price to move lower before the prevailing uptrend continues. The RSI exited its overbought area and the MACD, although positive, crossed below its trigger, favoring such a pullback. On the daily chart, the rate is trading above the upper boundary of a symmetrical triangle formation, suggesting a stronger pair in the next few weeks.

• Support: 100.00(S1), 99.65 (S2), 99.08 (S3).

• Resistance: 100.60 (R1), 101.44 (R2), 102.40 (R3).

GBP/USD

• GBP/USD moved higher, breaking above the upper boundary of the purple channel and violating the 1.6110 barrier (Friday’s resistance). If buying pressure continues pushing the price higher, I would expect the longs to find resistance at the ceiling of 1.6260 (R1). The MACD oscillator lies above its trigger line in its bullish territory, shifting the odds for further advance.

• Support: 1.6110 (S1), 1.6000 (S2), 1.5890 (S3).

• Resistance: 1.6260 (R1), 1.6375 (R2), 1.6442 (R3).

Gold

• Gold moved sideways, remaining below the 1290 (R1) barrier and reaching the upper boundary of the downward sloping channel. A decisive break above that area would be the first warning for further advance. However, the short-term trend of gold remains a downtrend as indicated by the purple channel and the bearish cross of the moving averages. Both momentum studies lie near their neutral levels, confirming the sideways move of the metal.

• Support: 1269 (S1), 1251 (S2), 1221 (S3).

• Resistance: 1290 (R1), 1305 (R2), 1320 (R3).

Oil

• WTI remained above the 93.14 (S1) support level and we should wait for a dip below that floor before making any assumptions for the continuation of the downtrend. The bears’ inability to overcome that hurdle confirms the positive divergence between our momentum indicators and the price action. Nonetheless, WTI remains in a downtrend as indicated by the blue downward sloping channel and by the fact that the 50-period moving average remains below the 200-period moving average.

• Support: 93.14 (S1), 91.22 (S2), 89.32 (S3).

• Resistance: 95.36 (R1), 98.81 (R2), 101.00 (R3).

BENCHMARK CURRENCY RATES – DAILY GAINERS AND LOSERS

MARKETS SUMMARY