Dollar Extending Decline, Ready for Downside Breakout?

Dollar is again under some selling pressure in Asian session and looks set to resume recent decline against European majors. Yet, with trading subdued, it’s doubtful whether selloff in the greenback would sustain. Traders would more likely hold off large bets until next week’s FOMC rate decision and economic projections. As for the week, Yen is currently the worst performer, followed by Canadian and Sterling. Euro and Swiss Franc are the strongest ones, followed by Dollar. Aussie and Kiwi are mixed.

Technically, USD/CHF is on the verge of breaking 0.9325 temporary low. But the key would lie in 0.9287 medium term fibonacci support (61.8% retracement of 0.8756 to 1.0146). Strong support could be seen there to bring sustainable rebound. And break of 0.9454 resistance should now confirms short term bottoming. EUR/USD’s reaction to 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609 should be watched simultaneously to gauge the Dollar’s downside momentum.

In Asia, at the time of writing, Nikkei is up 1.26%. Hong Kong HSI is up 1.64%. China Shanghai SSE is up 0.08%. Singapore Strait Times is up 0.19%. Japan 10-year JGB yield is down -0.0018 at 0.255. Overnight, DOW rose 0.55%. S&P 500 rose 0.75%. NASDAQ rose 1.13%. 10-year yield rose 0.083 to 3.491, after falling to 3.448.

BoC Kozicki: We will be considering whether to increase rates further

BoC Governor Deputy Governor Sharon Kozicki said in speech yesterday, “going forward, we will be considering whether to increase rates further”.

“By that, we mean that we expect our decisions will be more data-dependent,” she said. “If we are surprised on the upside, we are still prepared to be forceful. But we recognize that we have raised interest rates rapidly and that their effects are working their way through the economy.”

“In other words, we are moving from how much to raise interest rates to whether to raise interest rates,” she added.

China CPI slowed to 1.6% yoy in Nov, core CPI down -0.6% yoy

China CPI slowed from 2.1% yoy to 1.6% yoy in November, below expectation of 1.7% yoy. Core CPI, excluding food and energy, was down -0.6% yoy, unchanged from October. Food prices slowed from 7.0% yoy to 3.7% yoy. Non-food prices were unchanged at 1.1% yoy.

“In November, due to the domestic epidemic, seasonal factors, and a higher base of comparison in the same period last year, CPI turned from rising to falling month on month and fell back year on year,” said chief NBS statistician Dong Lijuan.

PPI was unchanged at -1.3% yoy, above expectation of -1.5% yoy. “In November, PPI rose slightly month on month as a result of price increases in coal, oil and non-ferrous metals, and continued to fall year on year due to a high base of comparison from the same period last year,” added Dong.

Looking ahead

Canada will release capacity utilization. US will release PPI but a bigger focus would be on U of Michigan consumer sentiment.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0508; (P) 1.0537; (R1) 1.0583; More

With current rebound, focus is back on 1.0594/0609 resistance zone (1.0609 medium term fibonacci level) in EUR/USD. Firm break there will carry larger bullish implication. Next near term target is 61.8% projection of 0.9729 to 1.0481 from 1.0222 at 1.0687, and then 100% projection at 1.0974. Nevertheless, on the downside, break of 1.0442 support should confirm short term topping and turn bias back to the downside for 1.0222 support.

In the bigger picture, a medium term bottom was in place at 0.9534, on bullish convergence condition in daily MACD. Even as a corrective rise, rally from 0.9534 should target 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Sustained trading above 55 week EMA (now at 1.0557) will raise the chance of trend reversal and target 61.8% retracement at 1.1273. However, rejection by 1.0609 will retain medium term bearishness for down trend resumption at a later stage.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Money Supply M2+CD Y/Y Nov 3.10% 3.00% 3.10%
01:30 CNY CPI Y/Y Nov 1.60% 1.70% 2.10%
01:30 CNY PPI Y/Y Nov -1.30% -1.50% -1.30%
13:30 CAD Capacity Utilization Q3 83.00% 83.80%
13:30 USD PPI M/M Nov 0.10% 0.20%
13:30 USD PPI Y/Y Nov 7.40% 8.00%
13:30 USD PPI Core M/M Nov 0.30% 0.00%
13:30 USD PPI Core Y/Y Nov 6.00% 6.70%
15:00 USD Michigan Consumer Sentiment Index Dec P 53.3 56.8
15:00 USD Wholesale Inventories Oct F 0.80% 0.80%

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