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Global Market Update
The View from Australia

by Craig Killaby | December 10, 2020

Data/Speakers

 

> AU November MI Inflation Expectations : 3.5% v. 3.5% prev.

> UK October Industrial Production : 1.3% v. 0.3% exp.

> EU ECB Main Refinancing Rate & Decision : 0.00% v. 0.00% exp.

> US Unemployment Claims : 853K v. 723K exp.

> US November CPI & Core CPI : 0.2% & 0.2% v. 0.1% & 0.1% exp.

 

Overnight Headlines (BBG)

 

> The EU approved a 2.2trillion EUR budget that provides ample fiscal stimulus to assist the region rebound from the COVID19 pandemic

> Brexit talks continue to offer little progress with the UK PM warning that a no-deal Brexit is a real possibility

 

What you need to know

 

The selloff in the USD continues with commodity pairs the major benefactors on strong gains in commodity markets overnight. The AUD looked poised to break through the recent highs in late trade yesterday, and it took some stimulus from both the ECB and the EU to see a further breakout and breach the 0.7500 handle fairly easily. The ECB did not disappoint in their monetary stimulus, with 500bio EUR being provided by Lagarde & Co. while noting that all the funds may not be needed and that the EURUSD exchange rate is being monitored. The EU leaders also came to the party by approving a 2.2trillion fiscal budget to complement the ECB’s actions, with plenty of government support to assist the region with what will likely be a difficult recovery. Brexit talks do not seem to be heading in the right direction, with PM Johnson telling the UK to brace for a no-deal Brexit, the worst case scenario for the region. GBPUSD slid to hover around the 1.3300 handle, with Sunday now the deadline for an agreement between the two sides.

 

In the US, the data continues to paint a negative picture for the economy as the fresh lockdowns leading into the winter has seen the unemployment claims jump by over 10% this week. The inability for the US lawmakers to agree on a support package puts downward pressure on the prospects, while the USD continues to struggle as investors look elsewhere for havens. The DXY is down 0.35% as I write, with the EURUSD back up over 1.2100. The Aussie and its crosses are looking healthy, with the local currency posting the highest levels since 2018 at 0.7535 and up 36.7% from the March lows. Equity markets in the US are in the red at the time of writing, with the S&P500 in a bit of a holding pattern awaiting congress to come to an agreement. Commodities are the story, with WTI crude up a whopping 3.3% from yesterday, while base metals continue to soar with Iron Ore up near 6% while Copper 3% higher. Gold remained steady, up 0.2%.

 

The Day Ahead

 

Data

 

> AU November Business NZ Manufacturing Index : 51.7 prev.

> EU November German Final CPI : -0.8% exp.

> UK BOE Gov. Bailey to speak

> EU Economic Summit

> US November Core PPI & PPI : 0.2% & 0.1% exp.

 

The strong end to the week signals that the path towards 0.8000 for the AUDUSD may be much closer than initially thought, a combination of a weaker USD, strong commodity prices and the domestic recovery key factors in the move. With the AUDUSD sitting at levels not seen since 2018, there may be some profit taking today, however any positive headlines may see further upside. The data is light to finish the week, however the headlines remain in focus, with further upside in the AUD likely.

 

Range for the day : 0.7480 – 0.7560

 

AUD/USD Technicals

 

The bullish momentum is building, and sitting at the highest levels since mid-2018 there is likely to see some profit taking today for those holding long positions. There seems to be little in the way of a move higher, breaking through resistance at 0.7485 yesterday with easy, stops triggered at 0.7500 sees the pair much higher from yesterday. Need to see a close above 0.7500 for the chances of another leg up, however very difficult to see a sustained move lower, with the buoyed by the outstanding commodity moves.

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