Financial markets showed mixed reactions to labor market data and central bank commentary while also positioning ahead of key economic events.
Were risk assets able to maintain their upward momentum despite geopolitical concerns?
Let’s check out the latest updates!
Headlines:
- New Zealand overseas trade index rose from 2.1% to 2.4% q/q in Q3 (1.7% forecast)
- UK BRC retail sales monitor declined 3.4% y/y in Nov (0.7% forecast, 0.3% previous)
- Swiss CPI in Nov: -0.1% m/m as expected (-0.1% previous)
- Spanish unemployment change in Nov: -16K (+29.3K expected, +26.8K previous)
- New Zealand GDT auction showed 1.2% increase in dairy prices after previous 1.9% gain
- U.S. JOLTS job openings in Oct: +7.74M (7.51M expected, previous reading revised down to 7.34M from 7.44M)
- U.S. RCM/TIPP Economic Optimism Index in Dec: 54.0 (54.1 expected, 53.2 previous), reaching 40-month high
- U.S. government imposed sanctions on entities tied to Iran’s oil exports
- OPEC+ said to advance talks to delay its planned production hike by three months
- FOMC member Kugler: Inflation moving toward 2% target but job not complete
- FOMC member Goolsbee: Expects significant rate decreases but vigilance needed against inflation reacceleration
- South Korean President Yoon declared martial law amid political backlash on budget over fears of anti-state communist forces
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
The trading day was marked with caution among most asset classes which remained in a holding pattern ahead of the JOLTS job openings release.
Crude oil was an exception, however, as the commodity found support from elevated geopolitical tensions in the Middle East, as well as reports suggesting that the OPEC+ is advancing its talks to delay its planned production hike by three months.
Gold found support around $2,638, possibly benefiting from dovish Fed commentary and geopolitical tensions following South Korea’s brief martial law declaration.
Meanwhile U.S. 10-year yields moved higher following stronger-than-expected JOLTS job openings data and equity markets showed resilience with German indices reaching record highs ahead of a confidence vote in France. The tech-heavy Nasdaq and S&P 500 also touched new peaks as technology shares extended their recent gains.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The Greenback was on a rollercoaster ride for the most part of the day, as it started off with a steady climb while traders probably unwound positions from the previous day’s decline before reaching a peak and tumbling across the board when London markets opened.
USD/CHF had a brief pop higher upon seeing another 0.1% decline in Switzerland’s CPI, keeping expectations for further SNB easing in play.
While the U.S. currency managed a slow pullback throughout the London session, USD/JPY seemed unstoppable in its slide until the U.S. printed a stronger than expected JOLTS job openings report, which then spurred positive NFP expectations.
Still, cautious Fed rhetoric kept dollar gains in check, as market participants continued to price in odds of a December rate cut. By the end of the session, the dollar closed mixed, as it ended in the green versus CAD, JPY, and CHF while losing ground to EUR, GBP, AUD, and NZD.
Upcoming Potential Catalysts on the Economic Calendar:
- European Services PMIs from 8:45-9:00 am GMT
- BOE Governor Bailey’s testimony at 9:00 am GMT
- UK Final Services PMI at 9:30 am GMT
- Eurozone PPI at 10:00 am GMT
- U.S. ADP Non-Farm Employment Change at 1:15 pm GMT
- ECB President Lagarde’s speech at 1:30 pm GMT
- U.S. ISM Services PMI at 3:00 pm GMT
- Fed Chair Powell’s testimony at 6:45 pm GMT
Market participants should stay alert for potential volatility around a couple of U.S. leading jobs indicators (ADP non-farm employment change and ISM services PMI), as well as central bank speeches (ECB head Lagarde and Fed Chairperson Powell).
Keep in mind that the combination of NFP expectations and monetary policy commentary could steer dollar pairs in a particular direction, especially if market sentiment makes huge swings then.
Don’t forget to check out our Currency Correlation Calculator when planning your trades!