Risk appetite remained extremely robust on Tuesday amid optimism over vaccine developments and supportive US macro policies next year.
Risk appetite remained extremely robust on Tuesday amid optimism over vaccine developments and supportive US macro policies next year. Equities made significant headway with Wall Street leading the advance and global indices close to record highs. The dollar overall lost ground as funds flows into risk assets and the currency dipped to near 11-week lows.
EUR/USD was unable to take full advantage and hit further selling interest above 1.1900. Sterling was unable to make further headway despite the global positive risk tone. Commodity currencies posted strong gains with AUD/USD at 11-week highs before a limited correction.
The German IFO index declined to 90.7 for November from 92.5 the previous month, although this was above consensus forecasts of 90.1. The current conditions component edged lower to 90.0 from 90.4 with a sharper retreat in expectations to 91.5 from 94.7 as fresh restrictions were introduced.
The Euro held a firm tone despite reservations over near-term conditions amid expectations of global reflation which would underpin exports.
US consumer confidence retreated to 96.1 for November from a revised 101.4 previously and below consensus forecasts of 98.0. There was little overall change in the assessment of current conditions and jobs market, but confidence in the outlook dipped sharply.
The Richmond Fed manufacturing index declined to 15 for November from 29 in October and below expectations of 20. New orders increased at a slower rate while employment continued to increase on the month. Manufacturing data has remained generally strong for the month.
The dollar overall lost ground on the day with sharp gains for commodity currencies as risk appetite secured a powerful boost during the day. The Euro was able to secure limited net gains, although there was no fresh EUR/USD challenge on the 1.1900 area.
Euro sentiment was underpinned by a confident tone from French President Macron who announced a relaxation of restrictions and stated that the second wave was over. Germany, however, registered a record increase in daily infections. The dollar remained on the defensive with EUR/USD again testing above 1.1900 in early Europe where resistance remained strong. Trading volumes will fade later on Wednesday ahead of the US Thanksgiving Holiday which could enhance choppy trading.
Risk appetite strengthened sharply during Tuesday with expectations of a strong rebound in the global economy. There were expectations of strong co-ordination of fiscal and monetary policy next year if former Fed Chair Yellen is appointed as Treasury Secretary in the new Administration.
As equity markets posted strong gains, defensive yen demand faded and the dollar was able to make limited net gains as the Japanese currency lost ground on the crosses. USD/JPY pushed to a high at 104.75 before fading amid the weight of wider losses.
Asian equities overall were mixed as China again under-performed with net losses, although the yuan held firm. There was still an element of optimism that a Biden administration would take a more measured stance on China which would ease potential tensions and help underpin risk appetite.
USD/JPY was unable to make significant headway on Wednesday and traded around 104.50 with EUR/JPY above 124.0.
The CBI retail sales index edged lower to -25 for November from -23 previously, although above consensus forecasts of -35. There was some relief that the lockdown impact had been less severe than in March with sales expected to be little changed in December. Internet sales increased sharply for the month while orders fell at the slowest rate since December 2019. Overall confidence in the UK outlook remained fragile, although the England lockdown will end on December 2nd.
There was a lull in Brexit developments during the day which stifled activity to some extent. Cabinet Minister Gove stated that the EU needed to move on its red lines.
The UK currency was able to gain support from the strength in risk appetite, although it under-performed relative to commodity currencies. There was no fresh GBP/USD attack on 1.3400, although there was support just below 1.3300 while GBP/EUR settled just below 1.1280.
The UK nations announced that there was agreement on easing coronavirus restrictions for 5 days around Christmas. Markets will be monitoring Chancellor Sunak’s spending review on Wednesday and month-end position adjustment may also have an impact with Brexit rhetoric also a key element.
Sterling was unable to make any headway on Wednesday while US President-elect Biden reiterated that the Irish border needs to remain open.
|09:00||CHF ZEW Expectations(NOV)||2.3|
|11:00||CBI Distributive Trades Survey(NOV)||-23|
|13:30||USD Durable Goods Orders Ex Transportation(OCT)||0.40%||0.90%|
|13:30||USD PCE Core Price Index (Y/Y)(OCT)||1.70%||1.50%|
|13:30||USD PCE Core Price Index(M/M)(OCT)||0.20%|
|13:30||USD Durable Goods Orders (M/M)(OCT)||1.90%|
|13:30||USD GDP Price Index (Q/Q)||-2.00%||3.70%|
|13:30||USD GDP (Annualized)||-32.50%||33.10%|
|13:30||USD Goods Trade Balance(OCT)||-79.36B|
|13:30||USD Personal Income (M/M)(OCT)||0.40%||0.90%|
|13:30||USD Personal Spending (M/M)(OCT)||1.00%||1.40%|
|13:30||USD Wholesale Inventories||0.40%|
|13:30||USD Continuing Jobless Claims||6020K||6372K|
|13:30||USD Initial Jobless Claims||730K||742K|
|15:00||USD Michigan Consumer Sentiment(NOV 01)|
|15:00||USD New Home Sales(OCT)||959B|
|15:00||USD New Home Sales Change(OCT)||2.80%||-3.50%|
|21:45||NZD Trade Balance (M/M)(OCT)||-1017M|
|21:45||NZD Trade Balance (Y/Y)(OCT)||1710M|