Dollar in Fed’s cross hairs, struggles near one-week low as rates signal awaited
It was all about the Federal Reserve for the dollar on Wednesday, as it struggled to shake off expectations policy makers would slow the pace of U.S. monetary tightening after their keenly-watched meeting later in the day.
The safe-haven yen and the Swiss franc held a firm tone as an overnight plunge in oil prices provided another stark reminder of the dimming prospects for the global economy, and underscored why traders expect the Fed will likely be done after an expected rate hike this week.
“The positioning going into the FOMC meeting is very defensive and that’s why we are seeing the dollar weakening,” said Michael McCarthy, chief markets strategist at CMC Markets.
The yen JPY= and the Swiss franc CHF= each added a little more than 0.1 percent on the dollar, changing hands at 112.33 and 0.9916 respectively, building on three consecutive days of gains.
Risk sentiment has been soured by weaker-than-expected economic data out of China and the eurozone, while the Sino-U.S. trade dispute and a collapse in oil prices have added to fears the global economy is fast losing momentum.
In Asia, markets are looking to China’s three day Central Economic Working Conference (CEWC) meeting that starts on Wednesday for Beijing’s growth and reform objectives. A steady downturn in China’s economy this year has been one of the key drivers of asset markets, including currencies, over the past several months.
The dollar index .DXY was down 0.25 percent at 96.86, hovering near a one-week low as it extended losses into the second day. The Fed speculation and global growth anxiety have sent U.S. bond yields down and put further pressure on the dollar – the U.S. 10-year treasury yield US10YT=RR has dropped about 10 basis points in the last three days.
Nervous anticipation was palpable in global markets as they awaited the Fed’s decision later in the day, especially as they look to its policy guidance for 2019 after what is expected to be its fourth rate hike for this year.
According to the CME Group’s FedWatch tool, the probability of a December rate hike is 69 percent, down from around 75 percent last week, a significant move in such a short period.
While the U.S. central bank’s latest median dot plot projections from September indicated three more hikes in 2019, the rate futures market is pricing in only one more rate hike for 2019 – a shift that underscored growing signs of stress on the global economy that many believe will eventually crimp U.S. growth.
Comments by Fed Chairman Jerome Powell in late November that the key interest rate was “just below” neutral, a level that neither brakes nor boosts the economy, have bolstered investor expectations that U.S. central bank is nearing a pause on its monetary tightening.
However, some analysts still see the Fed raising rates 2-3 times in 2019.
“We think the Fed would raise rates twice in 2019. The Fed’s reaction function will be very data dependent next year ,” said Stephen Innes, head of trading, APAC at Oanda.
Yet there were enough reasons for dollar bulls to stay cautious.
In an editorial published on Tuesday, the Wall Street Journal opined that it would be prudent for the Fed to pause on Wednesday. Link:here
Moreover, U.S. President Donald Trump kept up the pressure on the Fed, taking yet another jab in a tweet saying ‘I hope the people over at the Fed will read today’s Wall Street Journal Editorial before they make yet another mistake.’
When are the UK CPIs and how could they affect GBP/USD?
The cost of living in the UK as represented by the consumer price index (CPI) is due later on Wednesday at 0930 GMT. The headline CPI inflation is expected to accelerate to 0.2% inter-month in November while the annualized figure is seen ticking a tad lower to 2.3%. The core inflation rate that excludes volatile food and energy items is expected to have softened to 1.8% last month.
Deviation impact on GBP/USD
Readers can find FX Street’s proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined between 15 and 80 pips in deviations up to 2 to -3, although in some cases, if notable enough, a deviation can fuel movements of up to 120 pips.
How could it affect GBP/USD?
Upbeat UK CPI figures are likely to offer a fresh lift to the GBP bulls, that could help the rates retest 1.2700/06 (round number/ Dec 18 high), above which the next upside targets lie at 1.2752/60 (daily R2/ Dec 10 high) and 1.2812 (50-DMA).
On a negative surprise, the GBP/USD pair could fall back to the 5 and 10-DMA confluence near 1.2620 region below which floors open up for a test of 1.2589 (Dec 17 low) and 1.2550 (psychological levels).
About the UK CPI
The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).
China Watchers Split on Yuan Outlook; It All Comes Down to Trade
After missing this year’s slump in the yuan, forecasters for the Chinese currency are split on the outlook in 2019, thanks largely to the sharply divergent outcomes from U.S.-China trade talks.
Since the yuan’s four-year run of appreciation against the dollar ended in 2013, it has been tough to predict, thanks to shifting prospects for China’s economy as it decelerated and to sometimes unexpected policy moves by the country’s opaque leadership. This year, the largely flat outcome that analysts had expected was upended by President Donald Trump’s move to start a trade war between the world’s two largest economies.
“It depends pretty much on the trade conflict,” Stefan Grosse, an economist at Nord LB in Hanover, Germany, said of the yuan’s outlook for 2019. The currency could rise to 6.8 if an agreement is reached, or swiftly slide past 7 if not, he said. “Honestly, I am more pessimistic due to the erratic nature of the U.S. president. But I love to be proven wrong.”
The most optimistic forecaster sees the yuan climbing next year to 6.25 per dollar, while the biggest bear expects a slide to as weak as 7.4, according to a Bloomberg survey of 22 analysts and traders. It’s traded at 6.8940 in Shanghai Wednesday morning — weaker than all but four of 43 projections as of a year ago for its end-2018 level.
Stock Market News
Elon Musk unveils his first Los Angeles-area tunnel
Billionaire entrepreneur Elon Musk made a brief public appearance late on Tuesday to unveil the first tunnel completed by the underground transit venture he launched two years ago as an ambitious remedy to Los Angeles’ infamously heavy traffic.
But contrary to some of his own hype from several months ago, free rides were not part of the grand opening.
In a 30-minute presentation carried by live webcast, Musk touted the newly finished 1.14-mile (1.83 km) tunnel segment as a breakthrough in low-cost, fast-digging technology being pioneered by his nascent tunneling firm, the Boring Company.
Musk has advertised the proof-of-concept tunnel as a first step toward developing a high-speed subterranean network capable of whisking vehicles and pedestrians below the “soul-destroying” street traffic of America’s second-largest city at up to 150 miles per hour. But such a system has a long way to go.
The new tunnel was excavated along a path that runs not through Los Angeles but beneath the tiny adjacent municipality of Hawthorne, where Musk’s Boring Company and his SpaceX rocket firm are both headquartered.
Musk, best known as head of the Tesla Inc electric car manufacturer and energy company, launched his foray into public transit after complaining on Twitter in December 2016 that L.A.’s traffic was “driving me nuts,” promising then to “build a boring machine and just start digging.”
In May, the company gave the world a preview of the Hawthorne tunnel, posting a fast-forward video of its interior shot by a camera traveling the length of the cylindrical passageway, which measures about 12 feet (3.7 m) in diameter.
On Tuesday, Musk put the total price tag for the finished segment at about $10 million, including the cost of excavation, internal infrastructure, lighting, ventilation, safety systems, communications and a track.
By comparison, he said, digging a mile of tunnel by “traditional” engineering methods costs up to $1 billion and takes three to six months to complete.
FedEx Earnings, Revenue beat in Q2
FedEx reported second quarter earnings that beat analysts’ expectations on Tuesday and revenue that topped forecasts.
The firm reported earnings per share of $4.03 on revenue of $17.8B. Analysts polled by Investing.com expected EPS of $3.96 on revenue of $17.76B. That compared to EPS of $3.18 on revenue of $16.31B in the same period a year earlier. The company had reported EPS of $3.46 on revenue of $17.1B in the previous quarter.
For the year, FedEx shares are down 25.86%, under-performing the S&P 500 which is down 5.13% year to date.
FedEx follows other major Transportation sector earnings this month
On November 21, LATAM Airlines ADR reported third quarter EPS of $0.09 on revenue of $2.49B, compared to forecasts of EPS of $0.11 on revenue of $2.72B.
Promotora Y earnings beat analyst’s expectations on November 28, with third quarter EPS of $2.82 on revenue of $149.25M. Investing.com analysts expected EPS of $2.73 on revenue of $148.52M
Bitcoin Cash – ABC, Litecoin and Ripple Daily Analysis – 19/12/18
Bitcoin Cash – ABC Back in the $100s
Bitcoin Cash ABC rallied by 16.41% on Tuesday, following on from an 11.98% gain on Monday, to end the day at $103.65.
A late morning intraday low $84.18 was the only bearish move of the day, Bitcoin Cash ABC steering well clear of the first major support level at $80.59, before finding support from the broader cryptomarket.
Through the 2nd half of the day, Bitcoin Cash ABC hit a late in the day intraday high $105, breaking through the first major resistance level at $93.7 and second major resistance level at $98.9 to hold onto $100 levels by the day’s end.
At the time of writing, Bitcoin Cash ABC was up 10.92% to $114.97, early moves seeing Bitcoin Cash ABC breaking through the first major resistance level at $111.04, with a rise from a morning low $101.99 to a morning high $117 before easing back.
For the day ahead, holding above the first major resistance level through the morning would support another run at the second major resistance level at $118.43, with support from the broader market needed for Bitcoin Cash ABC to break out from $118 levels to bring $120 levels into play later in the day.
Failure to hold above the first major resistance level could see Bitcoin Cash ABC hit reverse later in the day, a pullback through the morning low $101.99 bringing sub-$100 levels into play, with the first major support level at $90.22 in play in the event of a broad based crypto sell-off.
Litecoin Holds onto $30
Litecoin gained 4.29% on Tuesday, following on from Monday’s 14.51% rally, to end the day at $30.12.
A relatively choppy day saw Litecoin fall to a late morning intraday low $27.71 before recovering to $28 levels through the afternoon, Litecoin holding well above the first major support level at $25.86.
It all boiled down to a late in the day broad based crypto rally, with Litecoin striking an intraday high $30.20, falling short of the first major resistance level at $31.19, while holding onto $30 levels.
At the time of writing, Litecoin was up 1.79% to $30.66, with moves through the early hours seeing Litecoin rise from a start of a day morning low $29.6 to a morning high $31.38, Litecoin breaking through the first major resistance level at $30.98, before easing back.
For the day ahead, a hold onto $30 levels through the morning would support another move through the first major resistance level to $31 levels to bring the second major resistance level at $31.83 and $32 levels into play, though Litecoin will need support from the broader market for a breakout from $31.8 levels later in the day.
Failure to hold onto $30 levels could see Litecoin ease back through the morning low $29.6, with a fall through $29.3 bringing $28 levels and the first major support level at $28.49 into play before any recovery, sub-$28 support levels unlikely to be in play on the day.
Ripple Back in the $0.35s
Ripple’s XRP gained 7.02% on Tuesday, following on from Monday’s 15.42% rally, to end the day at $0.0.36182.
Tracking the broader market, Ripple’s XRP struck a morning high $0.35398 before easing back to a late morning intraday low $0.33151, leaving the major support and resistance levels left untested through the morning.
A relatively range bound 2nd half of a day also saw Ripple’s XRP steer clear of the major support and resistance levels ahead of a broad based cryptomarket rally, Ripple’s XRP rising to an intraday high $0.36183 at the day’s end, breaking through the first major resistance level at $0.3612 on the way.
At the time of writing, Ripple’s XRP was up 5.3% to $0.3810, with Tuesday’s late rally continuing into the early hours, Ripple’s XRP breaking through the first major resistance level at $0.3719 and second major resistance level at $0.3820 to strike a morning high $0.3833 before easing back.
For the day ahead, a hold onto $0.38 levels through the morning would signal more to come later in the day, with a broad based crypto rally supporting a run at $0.40 levels to bring the third major resistance level at $0.4124 into play before any pullback.
Failure to hold onto $0.38 levels through the morning could see Ripple’s XRP cough up some of the morning gains, while we would expect Ripple’s XRP to avoid a pullback to sub-$36 levels, barring a broad based sell-off, Ripple’s XRP tracking the broader market through the first half of the week, with the bears very much in the driving seat.
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