Strong U.S. Data, Strong USD and an Active Market

By MoneyWay | Dec 8, 2017

This morning’s strong US data, completes the picture for a rate hike next week by the Federal Reserve. Nonfarm payrolls rose a stronger-than-expected 228,000 in November led by outsized gains for manufacturing at 31,000, construction at 24,000, and professional services at 46,000.

The Canadian dollar is basically holding its own, oil prices are up, +1.39%, and housing starts continue to remain strong. However, next week’s US rate hike is overshadowing any positive Canadian news and expect the USDCAD to go even higher.

Support                                Resistance

USDCAD   1.2825, 1.2800, 1.2785               1.2875, 1.2892, 1.2900

XE Reports:

he November jobs report was solid, though the dollar ended up lower than where it started. Some selling into strength was noted, as long USD positions were pared down into the weekend. Still the DY ended at 12-session highs near 94.00. EUR-USD bottomed at 1.1730 after the data, later making its way to 1.1771 highs. USD-JPY fell to 113.13 later bouncing to 113.58 highs on a stronger Wall Street. USD-CAD printed 1.2805 lows, later topping at 1.2880 as oil prices moved lower. Cable touched 1.3356 lows, with Brexit divorce agreement not impressing the FX market. Negotiations over trade terms will be the tough part, going forward.

EUR-USD rallied from 1.1730 session lows after the jobs report, topping at 1.1771 into the London close. The pairing has since turned sideways above 1.1850, hanging around its 50-day moving average of 1.1758. Progress on U.S. tax cuts has underpinned the dollar, while the euro itself has been faring better against other currencies, including the yen and Swiss franc, although has lost ground to the pound following news of an accord being reaching between the EU and UK on divorcing terms. We look for EUR-USD to remain a sell into upticks ahead of next week’s FOMC meeting, where a 25 basis point rate hike is widely expected

USD-CAD chopped around between 1.2805 and 1.2845 after the mix of data, which saw a firm U.S. jobs report, and strong Canada housing starts. The pairing later made its way back to 1.2880 highs, a six-session peak, before turning sideways. Oil prices moved off their best levels, which provided USD-CAD support.

USD-JPY bottomed at 113.14 at mid morning, since recovering to match the London peak of 113.58, a better than three-week high. The improved risk backdrop, driven by Brexit agreements, prospects for a U.S. tax reform bill, and a (short term) CR spending extension, has allowed USD-JPY to advance. Resistance comes in at 113.73-75, and support comes in at 113.10 and 112.70..

Cable logged a four-session peak at 1.3521 before ebbing back to the low 1.34s at the N.Y. open. Cable later based at 1.3356 into the London close. Agreement between the EU and UK on divorce terms has ultimately not given sterling much benefit. While the divorce bill is welcome by many, the next phase of negotiations to discuss a post-Brexit trade deal will be tougher as the 27 remaining EU members won’t likely be as unified in their collective position as they were with the divorce deal. And there remains the uncertainty of what Brexit will look like (whether a soft exit or hard exit).

EUR-CHF has seen volatile price action over the last several sessions, having on Friday turned sharply lower, to a low of 1.1599 after clocking a 35-month high of 1.1737, and subsequently lifting briefly back above 1.1700. There have been multiple failures to sustain gains above 1.1700 over the last month, and market participants will be wary of supply above this level. We remain bullish over the medium term, however. Assuming the Eurozone has conquered, or can conquer, existential political threats, and assuming the SNB remains anchored to ultra-accommodative monetary policy, which looks likely to be the case for the foreseeable, we anticipate EUR-CHF will make an eventual return to 1.2000. Support is at 1.1650.

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