28.11.2016 Daily Market Analysis

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After rising to its highest levels in more than 13 years, the US dollar (USD) witnessed a pullback on Friday, as all major pairs gained ground against it. But it is an important week for the USD, where it may yet recover its mojo.

Aside from the broad market expectation of a rate hike early next month, the USD was also supported by upbeat data and rising 10-year US treasury yields. US data last week, that included, Consumer Sentiment figures, Core Durable Goods orders and Home Sales, all beat expectations. Also, this week’s GDP numbers, Manufacturing figures as well as Nonfarm Payrolls are well expected to be solid. This will prop up the greenback as will the rising 10-year treasury yields. Over the past two months, 10-year T-yields have increased 80 basis points, warranting an even aggressive rate hike by the Federal Reserve.

.After three consecutive weeks of straight losses, the euro (EUR) ended last week higher against the USD as the broad pullback pressure against the greenback was sustained. It will be an eventful week for the euro, with ECB President Mario Draghi crossing the wires twice, on Monday and on Wednesday. Germany, Spain and Italy will also all be releasing Manufacturing data, Unemployment data as well as Consumer numbers. The euro will also be influenced by political factors. Already, in France, Francois Fillion will be the Le Republican candidate after he defeated his opponent in the second round of primaries. A social conservative, Fillion will now be facing far right candidate Marine Le Pen, in what promises to be a bruising battle. Italy is now the focus as it goes to the referendum next week. In view of these pressures, investors may shy away from the euro, which might trigger another round of bearish momentum on the currency.

In other currency news, the pound (GBP) has in recent days spent a lot of time in consolidation mode, but this might be its breakout week. GDP figures last week came in line with estimates at 0.5%, but the biggest news was Chancellor Hammond’s Autumn Forecast Statement. GBP rallied after Hammond surprised the markets with aggressive spending plans as well as more borrowing. This week, the UK will release Bank Stress Test results as well as Manufacturing and Construction data.

Commodity currencies have been taking the backseat in recent trading days, but this week they will be thick in the action. The Australian dollar (AUD) has been well supported by rising iron ore and copper prices, and investors will surely be focusing on Chinese Manufacturing and Commodity data. Australia will also release Private Capital Expenditure numbers as well as Retails sales. Besides RBNZ Governor Wheeler’s testimony, there is no important data for the New Zealand dollar (NZD) this week. But there will be plenty of action for the Canadian dollar (CAD). After many days of mixed OPEC headlines, the cartel members will be holding their 171st meeting this week, which will change the course of crude oil prices for the foreseeable future.

Investors are not convinced that a production freeze or cut deal is forthcoming, and this will weigh on oil prices, and subsequently, the CAD. But OPEC may yet surprise us with a deal, triggering a rally of crude oil prices, which will in turn strengthen the CAD. For the CAD, the OPEC meeting will override any macroeconomic data Canada is set to release. BOC Governor Poloz will hit the wires on Tuesday while on Wednesday, the country will release month on month GDP figures. On Friday, the release of Unemployment numbers will be the focus.

With the economic calendar fully packed, investors can expect high volatility in the markets, across the board, this week.