Dollar on Borrowed Time as U.S. Twin Deficits Balloon

 By Wayne Cole

SYDNEY (Reuters) - The dollar was ending 2020 in a downward spiral on Thursday with investors wagering a global economic recovery will suck money into riskier assets even as the U.S. has to borrow ever more to fund its swelling twin deficits.

The euro stood at $1.2291, having hit its highest since April 2018 with a gain of almost 10% for the year. The next stops for the bull train are $1.2413 and $1.2476, on the way to the 2018 peak at $1.2555.

The dollar was lying at 103.15 yen, but managed to hold above the December low of 102.86.

Euro Beats Yen, Sterling as Brexit, U.S. Stimulus Boost Risk Appetite

By Karen Brettell

NEW YORK (Reuters) -The euro was boosted on Monday as risk sentiment improved in the wake of Britain's trade deal with the European Union and U.S. President Donald Trump's decision to approve a new fiscal stimulus package.

Britain on Thursday clinched a narrow Brexit trade deal with the EU, just seven days before it exits one of the world's biggest trading blocs in its most significant global shift since the loss of its empire.

"What we are seeing is a continuation of the pricing out of hard Brexit risk," said Ulrich Leuchtmann, head of FX research at Commerzbank (DE:CBKG) in Frankfurt.

Dollar languishes amid pandemic aid optimism, pound meanders

By Kevin Buckland

TOKYO (Reuters) - The dollar languished near a 2-1/2-year low on Tuesday with demand for safe-havens flagging as U.S. lawmakers pushed forward with a COVID-19 relief package.

The House of Representatives voted on Monday to increase stimulus payments to qualified Americans to $2,000 from $600, sending the measure on to the Senate for a vote.

Last week's Brexit agreement, while bare bones, also supported the outlook for global growth, lifting Asian stocks on Tuesday following Wall Street gains.

"Optimism abounds, and it’s generally coming from equity markets," said Bart Wakabayashi, Tokyo Branch manager of State Street (NYSE:STT) Bank and Trust.

"The dollar is very heavy, and that will continue into next year."

The dollar index was little changed at 90.194 in holiday-thinned trading, hovering near the 89.723 level reached on Dec. 17 for the first time since April 2018.

Short positions on the dollar swelled in the week ended Dec. 21 to $26.6 billion, the highest in three months, according to Reuters' calculations based on data released by the Commodity Futures Trading Commission on Monday.

The euro rose 0.1% to $1.22260 early in the Asian session, hovering near the 2-1/2-year high of 1.22735 touched earlier this month.

The dollar bought 103.740 yen, another haven asset.

Sterling rose 0.1% to $1.3477 following a two-day decline. It was as high as $1.3625 this month, a level not seen since May 2018.

Investors have taken profits in the UK currency following the confirmation last week of a Brexit trade deal that was widely expected.

While the agreement came as a relief to investors, the pact leaves Britain far more detached from the EU, analysts say.

"People are still trying to figure out what this Brexit agreement means," weighing on the pound, said State Street's Wakabayashi.

"Nothing has really been agreed on financial markets, and that’s a big negative for the UK."

Bitcoin slipped 0.8% to $26,841, continuing its retreat from the all-time high of $28,377.94 set Sunday.

Dollar Down Over Continued Progress in U.S. Stimulus Measures

 

By Gina Lee

Investing.com – The dollar was down on Tuesday morning in Asia, staying near two-and-a-half-year lows as progress on the latest U.S. stimulus measures increased risk appetite.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was down 0.24% to 90.058 by 11:28 PM ET (4:28 AM GMT). The dollar hovered near the 89.723 level reached on Dec. 17, a level last seen in April 2018.

The House of Representatives voted to increase the amount of stimulus checks to qualified Americans from $600 to $1,200 on Monday, with the Senate preparing to vote on the increased amount.

The post-Brexit trade deal reached between the European Union (EU) and the U.K. during the previous week also increased investors’ risk appetite. Although the agreement was lacking in detail, the improved outlook for global growth and economic recovery from COVID-19 saw gains in global shares.

Some investors expected the dollar’s decline to continue.

“Optimism abounds, and it’s generally coming from equity markets. The dollar is very heavy, and that will continue into next year,” State Street (NYSE:STT) Bank and Trust Tokyo Branch manager Bart Wakabayashi told Reuters.

The USD/JPY pair inched down 0.09% to 103.69.

The AUD/USD pair was up x0.24% to 0.7595 and the NZD/USD pair gained 0.28% to 0.7118. Both Antipodean markets re-opened after a holiday on Monday.

The USD/CNY pair inched down 0.04% to 6.5318.

The GBP/USD pair gained 0.30% to 1.3489. The pound reversed two days of decline, and even saw a high of $1.3625 earlier in the month, a level it has not reached since May 2018.

Investors took profits in the U.K. currency as the Brexit deal, already widely expected, was confirmed just before the Christmas holidays.

Although investors breathed a sigh of relief as the agreement came before the end-of-year deadline, there were arguments that the deal leaves the U.K. more detached from the EU.

Investors are also still figuring out what the agreement means for the pound.

“People are still trying to figure out what this Brexit agreement means,” weighing on the pound, said State Street’s Wakabayashi.

The fact that the deal does not cover the financial markets is also a nagging concern.

“Nothing has really been agreed on financial markets, and that’s a big negative for the U.K.,” Wakabayashi added.

Meanwhile, the euro inched up 0.1% to $1.22260 earlier in the session, hovering near the two-and-a-half-year high of 1.22735 seen earlier in the month.

Dollar Drifts Lower as Trump Signs Stimulus Bill

 

By Geoffrey Smith 

Investing.com -- The dollar edged lower on Monday after President Donald Trump finally signed the government spending and corona-virus relief packages, after a bizarre intervention before the Christmas holiday in which he took issue with a number of spending proposals previously approved by his administration.

By 4 AM ET (0900 GMT), the dollar index, which measures the greenback against a basket of advanced economy currencies, was down 0.3% at 89.953, only 0.3% above the two-year low that it posted earlier in December.

In a holiday-thinned market, the signing of the bill removes a lingering source of uncertainty, encouraging the embrace of riskier assets, as people position for a global recovery in 2021.

“Easy financial conditions, positive vaccine news and prospects of a big rebound in global trade growth has led to a benign environment for EM FX,” analysts at Nordea said in a weekly research note, highlighting the Brazilian real, Mexican peso and South African rand as particularly well placed to benefit from the rollout of anti-Covid-19 vaccines next year.

Also supporting risk sentiment is the agreement between the EU and U.K. over their trading arrangements in the new year, which appears to have averted the threat of chaos at the border from January 1^st (even though the closure of the Channel Tunnel before Christmas due to the latest Covid-19 scare was just as effective in disrupting trade).

However, Sterling is showing signs of flagging after an initial boost. By 5 AM ET, it was flat against the dollar at $1.3551, while it was down 0.3% against the euro at 1.1071. Over the weekend, it became apparent that many key questions on the details of the new arrangements remain unanswered, including – crucially for the U.K. economy – the level of access to the single market allowed to Britain’s financial services sector.

"“We do not see this as any game-changer for markets," analysts at Toronto Dominion Securities said in a note to clients. "A deal was in the price and the specifics are unlikely to have any bearing on the direction of markets from here. While GBP is very cheap across many of our valuation models and much of the negotiation-linked uncertainty can fade, there is still significant economic underperformance and disruptions to follow early in 2021.”

The EUR/USD benefited more, rising 0.3% to $1.2237, within touching distance of its highest level since April 2018. It also rose 0.5% against the Swiss franc to a six-month high of 1.0885, another cross that pointed to a general drop in fear. The only currency in Europe stronger than the euro was the Polish zloty, which resumed its upward trend after a week in which the central bank intervened on the currency markets to stop it appreciating.

Gold Price Analysis: XAU/USD eyes monthly top near $1,907 as Trump signs covid aid package – Confluence Detector

Gold prices stay positive near a one-week high, currently up 0.80% while easing from the intraday high of $1,900.35 to $1,895, during early Monday. In doing so, the yellow metal extends the last Wednesday’s recovery moves from $1,859 toward the monthly top as the market’s sentiment improve on US President Donald Trump’s signing of the coronavirus (COVID-19) aid package.

Following his initial rejection, Trump surprised global markets during the early Asian trading while signing the US covid aid package for $600 paycheck and an additional $300 weekly unemployment supplement, per the New York Times.

Also supporting the market sentiment could be the extension of Brexit optimism and a lack of data/events amid the year-end holiday season.

Gold: Key levels to watch

Technically, the yellow metal’s ability to stay past 61.8% Fibonacci retracement on the monthly chart, around $1,889, propels the bulls to eye 100-SMA on one day (1D), near $1,898 offers as an immediate target ahead of the $1,900 round-figure.

However, Pivot Point one-month (M1) Resistance 1, coupled with the monthly peak surrounding $1,907 lures the gold buyers for now while November’s top near $1,965 can lure the bullion buyers afterward.

Meanwhile, a downside break of $1,889 level, resistance turned into support, can offer short-term support during the quote pullback moves.

During the commodity’s weakness past-$1,889, 5-SMA on four-hour (4H) near $1,884 and the previous week’s low near $1,855 could gain the market’s attention.

About Confluence Detector

The TCI (Technical Confluences Indicator) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. Knowing where these congestion points are located is very useful for the trader, and can be used as a basis for different strategies.

Source: https://www.fxstreet.com/

ASX 200, Nikkei 225 Open Higher as Nasdaq 100 Leads a Defensive Play

 

NASDAQ 100, NIKKEI 225, ASX 200 INDEX OUTLOOK:

• ASX 200, Nikkei 225 indexes opened mildly higher amid a relatively quiet pre-holiday trading
• US House and Senate have passed a giant spending bill of US$ 2.3 trillion, in line with expectations
• Falling industrial metal and crude oil prices flag the risk of softer demand as pandemic wave hits.

MIXED US SESSION, FALLING METAL PRICES, STRONGER USD, ASIA-PACIFIC AT OPEN:

A defensive session led by the tech sector may set a mixed tone for Asia-Pacific markets on Wednesday, with the ASX 200 and Nikkei 225 index opening mildly higher amid a relatively quiet holiday week. It is worth noting that the passing of a US stimulus package failed to inspire positive reactions among risk assets, as the expectations have largely been priced in over the past few weeks. Falling industrial metals and crude oil prices, alongside a rebound in the US Dollar, suggest that overall sentiment remains weak and there seems to be near-term demand for safety.

Concerns over a new type of coronavirus strain, which is reportedly 70% more transmissible than the original, has weighed on the prospects for global economic recovery. The potential for wider spread may threaten further lockdown measures and travel bans between the UK and Europe in a time when both sides are trying to finalize a post-Brexit trade agreement. More than 40 countries have banned UK arrivals because of the new virus strain and further restrictions are likely if the situation worsens.

Tech outperformed cyclical sectors on Wall Street and this theme is likely to play out across Asia-Pacific markets as well. Investors weighed stricter lockdown measures before the gradual rollout of vaccines helps to bring down the number of infections. The Dow Jones and S&P 500 fell 0.67% and 0.21% respectively whereas the tech-led Nasdaq 100 gained 0.51%.

The rising US Dollar threatens stock markets’ astonishing rally, as the DXY US Dollar index has exhibited a strong negative correlation with the S&P 500 index over the past 12 months. More than 40% of the S&P 500 companies’ revenue comes from overseas markets, which infers that a stronger USD will translate into lower overseas income due to forex changes. Same for the emerging markets, which are sensitive to the strength of the US Dollar as it tends to influence capital flows.

For now, however, recent strengthening in the US Dollar appears more like a technical rebound driven by demand for safety. Profit-taking activity following the passing of the US stimulus package has probably played a part too.

DXY US Dollar Index

On the macro front, US existing home sales figures came in at 6.69 million, or -2.5% MoM. This marks the first MoM decline observed since May 2020 as a result of soaring house prices and constrains in supply. The US economy expanded at annualized rate of 33.4% QoQ in the third quarter, slightly higher than baseline forecast of 33.1%. Today, the US Core PCE price index, durable goods orders and Michigan consumer sentiment index are among the top events to watch for. Read more on DailyFX calendar.

US Existing Home Sales MoM (November)

Source: Bloomberg, DailyFX

Sector-wise, 9 out of 11 S&P 500 sectors ended lower, with 65.5% of the index’s constituents closing in the red on Tuesday. Energy (-1.74%), communication services (-0.99%) and financials (-0.96%) were among the laggards, while information technology (+0.86%) and real estate (+0.61%) outperformed.

S&P 500 Sector Performance 22-12-2020

Source: Bloomberg, DailyFX

Nasdaq 100 Index Technical Analysis

The Nasdaq 100 index is trending up within the “Ascending Channel” formed since early November, forming higher highs. The overall trend remains bullish-biased, as suggested by upward-sloped 20-, 50- and 100-Day Simple Moving Average (SMA) lines. Its upward momentum, however, appears to be faltering as the MACD indicator trends lower after the formation of a “Death Cross” in early December. Immediate support and resistance levels can be found at 12,530 and 12,790 respectively.

Nasdaq 100 Index – Daily Chart

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index has been trading in a “range-bound” condition since early December as highlighted in red color below. Immediate support and resistance levels can be found at 26,350 and 27,000 respectively. Breaking this support may open the door for further losses with an eye on 26,000 for support.

Nikkei 225 Index – Daily Chart

ASX 200 Index Technical Analysis:

The ASX 200 index has likely broken the “Ascending Channel” this week (chart below) and the overall momentum has turned bearish as suggested by the MACD indicator. An immediate support level can be found at 6,570 – the lower Bollinger Band. Price has pierced below the middle Bollinger Band (also the 20-Day SMA), suggesting that near-term trend has likely turned bearish.

ASX 200 Index – Daily Chart

--- Written by Margaret Yang, Strategist for DailyFX.com

Australian Dollar Forecast: AUD/USD Down Despite Stellar Retail Sales

AUSTRALIAN DOLLAR, AUD/USD, RETAIL SALES, US STIMULUS – TALKING POINTS...

• US stimulus talks come to a conclusion as Congress begins voting on relief bill
• AUD/USD fails to show upside reaction to stellar local November retail sales data
• US Covid hospitalizations rise further, new UK strain adds to investors’ worries

US lawmakers are in the final stages of approving a Covid aid bill that will inject $900 billion of relief funds into the economy through direct stimulus payments to Americans, supplemental unemployment benefits, Covid vaccine distribution measures, and other virus-related health measures. Progress on Capitol Hill wasn’t reflected on Wall Street, however, with the S&P 500 and Nasdaq Composite falling 0.39% and 0.11%, respectively.

The Dow Jones managed to close out the session with a slight gain however as financial stocks made solid progress following last week’s Fed bank stress test results that cleared the way for large lenders to begin issuing dividends in Q1 2020. Still, the VIX volatility index – investors’ so-called “fear gauge” – rose nearly 17% on Monday, and spiked over the 30 handle in intraday trading.

US COVID STATISTICS

The risk-off move appears to come as an increasingly worrisome Covid situation shifts into view for investors. US hospitalizations continue to rise with a record-breaking 115,351 currently hospitalized from Covid as of December 21, according to The Covid Tracking Project. New worries about the coronavirus in the UK also appear to have prompted the risk-off turn, with a recent mutation identified in the virus causing the country to impose a higher tier of lockdowns across London and new travel restrictions from other European countries.

S&P 500, DOW JONES, VIX INDEX– 30-MIN CHART

TUESDAY’S ASIA-PACIFIC OUTLOOK

The Asia Pacific session is seeing early signs of a risk-off spillover from Wall Street trade as Covid-19 worries look to keep investors on edge. The Australian Dollar also failed to benefit from a blowout beat on preliminary local retail sales data. According to the DailyFX Economic Calendar, receipts for November climbed 7.0% versus estimates calling for a 0.6% decrease. AUD/USD traded to the downside despite this stellar outcome.

Economic prints for the rest of the week appear relatively light across the Asia Pacific region. However, the United States and the United Kingdom are both set to release their final economic growth figures for the third quarter, with the UK expected to post a 15.5% Q3 growth rate, and the US a more impressive 33.1% reading. While both data prints constitute final readings for GDP, any deviation from analysts’ expectations may see a sizeable market reaction.

AUD/USD TECHNICAL OUTLOOK:

After putting in fresh multi-year highs last week, AUD/USD has broken back below a 2019 trendline. The recent breakdown leaves the longer-term rally intact, but the downward pressure may likely signal a short term exhaustion for Aussie-dollar bulls. The 23.6% Fibonacci retracement level from the October swing low to the recent high was broken by a sharp intraday move lower. Prices have since recovered and now rest below the 2019 trendline.

The breakdown in momentum, despite November’s stellar retail sales, is reinforced by the technical structure in AUD/USD. The current MACD is converging, and RSI broke below the 70 overbought level. The 0.75 handle, which sits slightly above the 23.6% Fib retracement (0.7486) may serve as a point of contention on any further pushes lower. Should AUD/USD hold above that level, or the current higher levels, the longer-term bull trend may likely resume.

AUD/USD DAILY CHART

Source:

https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2020/12/22/Australian-Dollar-Forecast-AUDUSD-on-Backfoot-Despite-Stellar-Retail-Sales.html

Nasdaq 100, S&P 500 Hit New Highs on Bipartisan Stimulus Bets. ASX 200 to Rise?

NASDAQ 100, S&P 500, ASX 200, US STIMULUS, COVID VACCINE – ASIA PACIFIC INDICES BRIEFING...

• Nasdaq 100, S&P 500 hit new all-time highs on vaccine, stimulus bets
• APAC equities could rise, Chinese CPI may dim PBOC normalization
• ASX 200 pushing for a key resistance break, but momentum is fading

WALL STREET TRADING SESSION RECAP

Following a mixed European session, equities pushed higher during Tuesday’s Wall Street trading hours. The tech-heavy Nasdaq Composite (+0.50%) outperformed the S&P 500 (+0.28%), both hitting new all-time highs as the Dow Jones rose 0.35%. The VIX market ‘fear gauge’ declined towards lows seen at the end of November, signaling fading prospects of volatility despite recent surges in coronavirus cases.

Sentiment was bolstered by a couple of developments. First, there were rising prospects of a Covid vaccine rollout in the US. The Food and Drug Administration (FDA) reported that the vaccine by Pfizer and partner BioNTech met expectations of the agency’s guidance. It was about 95 percent effective in preventing the disease as well as found safe. That may open the door to emergency authorization use soon.

Stimulus bets was another driver of the rosy mood. Senate Majority Leader Mitch McConnell opened the door to setting aside business liability protections if Democrats drop demands for state government aid in the $908 billion bipartisan bill. Meanwhile, Treasury Secretary Steven Mnuchin presented a separate $916b stimulus pitch on the behalf of the Trump Administration that includes state aid and $600 checks per eligible adult.

Taking a look at sectoral performance in the Dow Jones, 80% of constituents closed higher. The top 3 performing sectors were materials (+2.52%), energy (+0.86%) and health care (+0.71%). Meanwhile, the worst-performing one was consumer discretionary (-0.17%).

DOW JONES SECTORAL PERFORMANCE

Data Source: Bloomberg

NASDAQ 100 TECHNICAL ANALYSIS

Nasdaq 100 futures extended gains, pushing above the 12197 – 12465 resistance zone. That has exposed the 38.20% Fibonacci extension at 12886. Maintaining the focus to the upside is a short-term rising trendline from late October. In the event of a material turn lower, keep a close eye on the medium-term 50-day Simple Moving Average (SMA).

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NASDAQ 100 FUTURES – DAILY CHART

WEDNESDAY’S ASIA PACIFIC TRADING SESSION – ASX 200, NIKKEI 225, KOSPI, CHINESE CPI

Asia Pacific equities are trading broadly higher during morning Wednesday trade, following the rosy lead from Wall Street. Dow Jones and S&P 500 futures are also rising. As such, regional equities such as Australia’s ASX 200 and Japan’s Nikkei 225 may extend gains. South Korea’s Kospi index is attempting to recover Tuesday’s 1.62% drop which may have been as a result of profit-taking following persistent gains.

Reports crossed the wires that Speaker of the House Nancy Pelosi and Senate Minority Leader Chuck Schumer said Mnuchin’s proposed plan was ‘unacceptable’. For now, traders seem to be focused on the bipartisan relief bill as well as Covid vaccine distribution. This update may come back into play down the road if more gridlock delays much-needed fiscal support.

Chinese CPI turned negative both y/y and m/m in November, the first time since 2009. That has poured cold water on PBOC normalization bets which may offer a boost to the Shanghai Composite and CSI 300. Later today, Canada’s TSX Composite index is eyeing the BoC rate decision. For more data, check out the DailyFX economic calendar.

ASX 200 TECHNICAL ANALYSIS

The ASX 200 is attempting to climb above the November high at 6713, exposing the 6893 inflection zone. Negative RSI divergence is showing that upside momentum is fading. This may precede a turn lower, placing the focus on the inflection zone from August 2019 between 6396 and 6475. The broader uptrend could hold via the 50-day SMA in the event of a material pullback.

ASX 200 – DAILY CHART

Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com