24.11.2016 Daily Market Analysis

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After a 2-day consolidation pause, the US dollar (USD) was back in the limelight, as positive data and a positive tone in the latest FOMC minutes sent the USD Index to levels only last seen in March 2003.

Month on month Core Durable Goods Orders increased 1%, smashing expectations of a 0.2% growth. Unemployment claims ticked higher to 251,000, while investors were expecting 241,000, and US Crude Oil inventories shrank by 1.3 million barrels, much lower than expectations of a 0.3 million barrel build. But the much anticipated FOMC minutes did not disappoint. While it showed that the Fed had kept interest rates unchanged at 0.25%-0.5%, there is now improved optimism that rates will be raised next month with the majority of members generally agreeing that the case for a rate hike has strengthened significantly. Some members even said that hiking rates would help preserve the credibility of the Federal Reserve Bank. In all ways, a December rate hike now seems like a unidirectional bet.

In other currency news, the Japanese yen (JPY) was the biggest loser in the day, shedding almost 2% of its value, as Japan Banks remained closed for Thanksgiving Day. The USDJPY pair is usually considered a gauge for market sentiment, and on Wednesday it confirmed that the pro-dollar theme will continue dominating until confirmation of a rate hike next month.

The euro (EUR) also printed fresh 2016 lows as it was weighed down by weak Eurozone data and remained vulnerable to a strong USD. German Flash Manufacturing PMI came in at 54.4, lower than the expected 54.8, while French Manufacturing PMI came in as expected at 51.5. Euro traders will now wait on the German Ifo Business Climate data, which is the only piece of high impact data today.

The British pound (GBP) was the only major currency that did not succumb to the King USD on Wednesday.

The main reason was a bullish Autumn Forecast Statement that was delivered by Chancellor Phillip Hammond. Hammond started his speech by quoting the IMF who had predicted that the UK will be the fastest growing major economy. Hammond expressed confidence that the UK will tackle long term weaknesses in its economy, and also raised the forecast for 2016 full year economic growth. The UK economy is now expected to grow 2.1% in 2016, higher than the 2.0% forecasted in March.

All commodity currencies drifted lower against the USD. With no major data from Australia, Canada and New Zealand on Wednesday, their respective currencies gave in to the pressure of the mighty greenback. Investors will today wait on the release of quarter on quarter Canadian corporate profits as well as New Zealand Trade Balance numbers.

It is a light data day today, and US Banks will be closing in observance of Thanksgiving Day. Volatility is likely to be very low, but when action hits the market again, it is the US dollar that will likely be in the driver’s seat again.