Forex Afternoon Wrap – 14/12

Markets cautious eyeing Fed meeting this Wednesday

• Japan Tankan manufacturing index 12 vs. 11
• Japan Tankan non-manufacturing index 25 vs. 23
• UK Rightmove HPI m/m -110% vs. -1.30% previously
• Japan revised industrial production m/m 1.40% vs. 1.40%
• Japan tertiary industry activity m/m 0.90% vs. 0.50%
• Eurozone industrial production m/m 0.60% vs. 0.30%
• ECB Draghi’s speech
• BoE Member Shafik speech

The markets opened on a cautious note ahead of the Fed’s important meeting this Wednesday. The equity markets remained on the back foot in Asia with the Nikkei225 down -1.81% and the Hang Seng index closing lower with -0.72% losses for the day. The Shanghai index was the sole gainer, rising 2.52% for the day. The Yen remained weak in early Asian trading but soon gathered momentum as USDJPY tested Friday’s lows of 120.7. The Yen had gained strongly in the past few days on risk aversion which sent the safe-haven currencies stronger. At the time of writing, USDJPY is down -0.07%.

Data from Japan this morning included the Tankan manufacturing index which rose to 12, from 11 while the non-manufacturing index eased back to 25. Revised industrial production came out as expected at 1.40% while the tertiary industrial activity gained 0.90%.

The commodity risk currencies, Aussie and the Kiwi were again under pressure today. After posting strong losses on Friday, AUDUSD attempted a short-lived rally which saw price testing intraday high to 0.722 before giving back the gains. The Aussie, however, remained up 0.19% for the day after prices touched a 10-day low below 0.7122 in early trading session. The NZDUSD was faring better in comparison, rising 0.34% for the day, but remains well below Friday’s high at an intraday session high to 0.6755.

The European session was quiet with no major releases worth noting. Eurozone industrial production expanded 0.60%, above estimates of 0.30%. The EURUSD started the day on a weak note, falling off the opening session to post an intraday low to 1.0947 before recovering some of the lost ground. The single currency is down -0.19% for the day and is range bound off Friday’s session at the time of writing. ECB Chief Mario Draghi commented today on monetary policy, where he noted that the ECB’s latest measures would help the Central Bank achieve its 2.0% inflation target. He further went on to stress that the ECB has all the adequate tools necessary to achieve the mandate. The Euro did not react much to Draghi’s comments.

The British Pound is down strongly today, by -0.70% at the time of writing as the GBPUSD touched an intraday low to 1.5108 before attempting to recover some of the lost ground. BoE’s Minouche Shafik was on the wires this morning who noted that she wouldn’t vote for a rate hike until she was convinced on wage growth. She, however, said that the pace of the rate hikes is likely going to be much sharper than what the markets currently expect. On the exchange rate, she said that the stronger British Pound could put downward pressure on inflation in the medium term.

The US trading session is yet to open, but the futures markets are looking for another volatile day. The Dow Jones futures index is down -0.26%, while the S&P500 futures are down by -021%, following suit from the Asian markets and Europe where the DAX is down -0.94% while the London FTSE100 is down -0.15%.

Oil prices are seeing another strong sell-off today with prices trading below the $35 handle, touching 2009 lows. WTI Crude oil was trading at $34.6 a barrel at the time of writing, down -2.4% for the day and posting a seven-day consecutive loss. Gold prices are trading mixed although down -0.67% for the day, trading at $1068 a barrel.