Dollar Pares NFP Gains

Daily Analysis - 10/11/2015

The US Dollar Eases Back After Payrolls as Global Currencies Post Soft Recovery from Earlier Declines

Lack of economic data saw the US Dollar pare its gains from Friday with most of the currencies recovering off Friday's lows during yesterday's trading session. Gold prices also managed to bounce off the lows from 1085 to trade near 1092, marking a small recovery.

Euro Gives Back 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.

S&P 500 Posts Fourth Straight Decline

The US equity markets were relatively stable after Friday's jobs report albeit the S&P 500 has been posting lower highs since topping out near 2109 last week. S&P 500 futures closed lower yesterday, falling to 2071. Equity markets have largely managed to react calmly since Friday's NFP report suggested the Fed would be on track to hike rates in December. The current declines could see a correction to lower support near 2011 through 1983 which marks the previously formed resistance after equity markets experienced a substantial correction in August. A correction to 2011 - 1983 would mark a retest of the previously broken resistance for support and would still keep the bias of the S&P 500 to the upside. A break below support could see another bout of selling which could send the S&P 500 back to the lower support in the 1870 - 1847 region.

China Posts Weak Inflation

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.

RiksBank and Norway CPI Ahead

The Swedish Riksbank will be publishing its October 27th monetary policy meeting minutes later today. Expectations are for MPC members to have unanimously voted in favor of unchanged rates and an extension to the asset purchase program with inflation remaining subdued at 0.10%, below the Central Bank's 2.00% target. The Eurozone periphery countries have all turned dovish on monetary policy in anticipation of the next tranche of easing from the ECB in December. EURSEK closed yesterday on a bearish note at 9.3300. Besides the Riksbank MPC minutes, Norwegian inflation data is also due with expectations of annualized CPI rising to 2.30% from 2.10% previously. The Norges Bank kept rates unchanged last week as widely expected with Governor Olsen commenting that the Central Bank would re-asses its forecasts in the December meeting after considering the economic data from third quarter.