Dollar Pares NFP Gains

The Euro gave back some of its gains yesterday after testing the daily session highs to 1.0789 after Reuters carried a news report stating that the ECB was forming a consensus to take the deposit rates further into negative territory at the December ECB meeting, citing four governing council members. According to the dovish report, some members argued that the deposit rate cut should be larger than the current 0.10% rate cut expectations as the ECB is inclined to exhaust the conventional monetary policy tools before consideration of expanded asset purchase measures. The deposit rates currently stand at -0.20%. European Central Bank President Mario Draghi stated in the October ECB meeting that the Central Bank would discuss expanding its quantitative easing at the meeting in December in a bid to weaken the Euro and push up inflation. EURUSD closed yesterday’s session at 1.0750.

Inflation numbers released earlier today from China showed that consumer inflation in the globe’s second largest economy increased at a modest pace of 1.30%, missing the median consensus estimates of 1.50% and posting a decline in inflation growth from 1.60% a month ago. The producer price index managed to meet estimates, falling -5.90% and continues to remain weak, pointing to continued consumer disinflation over the medium-term. Markets so far have remained muted to the inflation numbers. Concerns however remain on how the financial markets will react when the European and US trading sessions open later. The offshore Chinese Yuan is currently trading at 6.3900 at the time of writing but marks a potential break out from the larger ascending triangle pattern. Support is at 6.3700 and as long as prices stay above this level, USDCNH could see further upside in store with the next main resistance coming in at 6.4300.