FOREX: USD Tilts Higher Amid Venezuela Uncertainty, Oil Tied FX Pressured
Jan-05 10:48
- The fallout from Venezuela remains difficult to parse for G10 FX, which are instead following cross-market cues via higher precious metals and rallying equities (IT and industrials outperform thanks to tech strength in Asia as well as ASML's 3.5% rally on a Bernstein upgrade).
- The USD's continued recovery off the late December lows nicely coincides with the formation of a golden cross (50-dma > 200-dma), pointing to potential corrective activity in the USD Index's 1% rally since Christmas.
- We noted the distinct pressure on front-end implied vols across G10 FX in the lead-up to Christmas (even when seasonals were accounted for), and little has changed. EUR 3m vols remain trending lower, with JPY the sole standout in vol space.
- Oil-sensitive FX is underperforming as crude softens despite the significant uncertainty over Venezuela’s oil production capability after the capture of Maduro.
- As such, USDCAD upward pressure comes via both legs of the trade, making light work of its 20-day EMA, narrowing the gap to the 1.3806 December 19 high. From a technical perspective, a bear theme remains intact for now, with key short term support at 1.3643 but short-term the corrective bounce may extend.
- USDNOK expectedly also sees gains this morning but remains within its December range, with resistance at 10.2429, the December 18 high.
- Key focus is on any cues if the US will be able to secure power over Venezuela and if further intervention may be needed to achieve that given some question marks on now acting president Delcy Rodriguez.
- Elsewhere, ISM Manufacturing highlights the data calendar for today while markets await Friday's December employment report. This will be the last NFP release before the FOMC's end-January meeting, at which participants would probably require substantially weaker-than-expected figures to spur even consideration of a another 25bp cut.
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USDCAD TECHS: Bull Channel Breakout
Dec-05 21:00
- RES 4: 1.4140 High Nov 5 and a key resistance
- RES 3: 1.4131 High Nov 21
- RES 2: 1.4051 High Nov 28
- RES 1: 1.3939/4016 Low Nov 28 / 20-day EMA
- PRICE: 1.3865 @ 16:35 GMT Dec 5
- SUP 1: 1.3853 Intraday low
- SUP 2: 1.3840 50.0% retracement of the Jun 16 - Nov 6 bull cycle
- SUP 3: 1.3812 Low Sep 23
- SUP 4: 1.3779 Low Sep 22
A bear theme in USDCAD remains intact and Friday’s strong sell-off reinforces a bear theme. The pair has breached an important support at 1.3942, the base of a bull channel drawn from the Jul 23 low. The break highlights a stronger bear cycle and signals scope for an extension towards 1.3840 next, a Fibonacci retracement point. Initial firm resistance to watch is 1.4016, 20-day EMA.
LOOK AHEAD: US Week Ahead: FOMC Decision Dominates, Post Shutdown Data Catch-Up
Dec-05 21:00
- Next week’s US calendar is dominated by the FOMC decision on Wednesday, with a third consecutive 25bp cut almost fully priced.
- Expect it to be a contentious meeting however, with many arguing for a pause not least whilst they’re still relatively in the dark on key official data releases following the government shutdown.
- Fed Chair Powell opted for a surprisingly hawkish tone at the late October press conference, highlighting a deeply divided committee on prospects for another cut in December.
- The “fog” had appeared to win out until NY Fed’s Williams, a senior permanent voter, gave unusually explicit guidance on still seeing room “for a further adjustment in the near term”. With no pushback from FOMC members or media briefings, it appears this message has approval from the core of the FOMC which should be enough to see a rate cut this month. The likely catalyst was the further increase in the unemployment rate to 4.44% back in September, although subsequent tracking suggests stabilization and jobless claims data don’t show any signs of deterioration.
- We’ll be looking for the number of hawkish dissents (we’d be surprised if anyone joins Miran dissenting for a 50bp cut) and expect a greater number to object to a cut in the 2025 dot plot, whilst the distribution of dots for 2026 should be in greater focus.
- As for the economic projections, we expect upward revisions to GDP growth but downward revisions to near-term core PCE inflation with tariff passthrough proving less severe than previously feared.
Aside from the Fed, we also receive two months worth of JOLTS data along with other delayed releases as the shutdown data backlog is slowly caught up.
AUDUSD TECHS: Bullish Impulsive Wave Extends
Dec-05 20:30
- RES 4: 0.6723 High Oct 21 ‘24
- RES 3: 0.6707 High Sep 17 and a key resistance
- RES 2: 0.6660 High Sep 18
- RES 1: 0.6649 Intraday high
- PRICE: 0.6630 @ 16:32 GMT Dec 5
- SUP 1: 0.6580/6533 High Nov 13 / 20-day EMA
- SUP 2: 0.6517 Low Nov 27
- SUP 3: 0.6466/21 Low Nov 26 / 21
- SUP 4: 0.6415 Low Aug 21 / 22 and a bear trigger
A strong impulsive bull wave in AUDUSD remains intact, having printed 10 consecutive sessions of higher highs. Recent gains have cleared a number of important short-term resistance points, strengthening a bull theme and highlighting scope for a continuation higher. Today’s rally has resulted in a breach of 0.6640, 76.4% of the Sep 17 - Nov 21 bear leg. This opens 0.6707, the Sep 17 high and key resistance. Key support to watch is at 0.6533, 20-day EMA.
