European Market Outlook: US Dollar Eases in the Last Full Session of 2016

MARKETS

FOREX: The US dollar was broadly weaker during the Asia-Pacific region as UST yields continued to edge lower. Dollar-yen slipped from Y117.26 to Y116.64, the move was also aided by Japanese equities, the Nikkei trading lower by some 1.3%. Dollar-yen was last at Y116.68. Euro-dollar inched higher from $1.0409 to $1.0449 and was last at $1.0448. Meanwhile, Aussie-dollar traded in well trodden ranges, the pair crawling higher from $0.7170 to $0.7205 and currently trades at $0.7203.

US INDEX FUTURES: US stock index futures are trading slightly higher in quiet trade. Currently the Mar’17 e-mini S&P futures are trading up 1.25 points at 2,246.50, the Mar’17 e-mini Nasdaq futures are trading up 0.75 of a point at 4,924.50, while the Mar’17 e-mini Dow futures are trading up 5 points at 19,780. On Monday, the Dow Jones got within 20pts of the magical 20,000 level but backed away. Yesterday, it got 1pt closer but was unable to sustain the early strength and proceeded to grind lower through the course of the day, closing at the day’s lows, down 111.36pts (0.55%) at 19,833.68. The S&P 500 skidded a steeper 18.96pts (0.85%) and settled at 2,249.92 while the Nasdaq Composite retreated from its record high, closing at 5,438.56, down 48.89pts (0.9%) and the Russell 2000 was thumped 1.25% lower, ending the day at 1,360.83.All of the S&P 500’s 11 major industry groups ended the day swimming in red ink.

US TSY FUTURES: Cash treasuries have yet to trade after the first 15-minutes or so, with CT10 currently at 95-175 bid or 2.512% compared to the close of 95-185 or 2.508%. Technically the hourly charts have seen both cash 10’s and 10yr futures stall at their respective 61.8% retracements of 2.503% and 123-215 respectively. Recap from Wednesday: Treasuries end higher Wednesday, curve mainly flatter after stellar $34B 5Y auction surprised many as stopped thru to 2.057% rate, strong 71.4% in-directs (most since at least 2008), 4.10% directs, only 24.5% dealers. – Short-covering in thin holiday market presumably chased prices higher, as had positioned cautiously after soft 2Y auction Tues. Traders said foreign central banks and real money bought the 5Y auction. Speculation over their participation in Thursday’s $28B 7Y note auction. – Traders cited apparent stocks/bonds asset allocation by pension funds into mo/qtr-year-end, as DJIA receded off pursuing its 20,000 goal, while US bonds rallied after 5Y sale.

JAPAN STOCKS: Japanese stocks have eased during the morning session on the back of a strong Yen. The Nikkei has closed for lunch down 0.98% or 190.79 points at 19,210.93, while the Topix is last down 1.01% or 15.57 points at 1,521.23.

GOLD: Spot gold last up $6.70 at $1148.35 per ounce, in a $1,148.45 to $1,141.64 range so far this morning in Asia, with the market supported by a weaker US dollar and lower US treasury yields. Wednesday saw gold rally for its 4th consecutive session on concerns over Trump’s Presidency sources say. According to Bloomberg data ETF holdings fell for the 33rd consecutive day its longest decrease since 2004.

OIL: WTI crude oil futures for Feb’17 delivery last up $0.08 at $53.74 per barrel, after a $53.80 to $53.46 range in Asia today, with the market adding to Wednesday’s gains. Oil futures rose for a fourth straight session yesterday, trading at nearly 18-month highs on expectations OPEC and other major oil-producing nations will make good on promises to cut output in the new year. Accordingly, Feb Brent crude oil climbed 13 cents (0.2%) and settled at $56.22, the highest level since 22 July 2015 while Feb WTI gained 16 cents (0.3%) and closed at $54.06, the highest level since 2 July 2015. Most market participants are waiting to see if major oil producers, both inside and outside OPEC, will deliver on pledges to curtail production beginning next month. The deal, if carried out as planned, should reduce global supply by about 2%.

Technical Analysis
BUND: (H17) Bulls Focused On 165.04-165.36
eurex_122916

  • RES 4: 166.84 High Oct 24
  • RES 3: 165.36 Daily Bull channel top
  • RES 2: 165.26 Monthly High Nov 9
  • RES 1: 165.04 100-DMA

PREVIOUS CLOSE: 164.22

  • SUP 1: 163.83 Hourly support Dec 27
  • SUP 2: 163.52 High Dec 19 now support
  • SUP 3: 163.46 55-DMA
  • SUP 4: 163.24 Daily Bull channel base

COMMENTARY: The bullish close to last week has been followed up with a break and consolidation above 163.87 which sees bulls focused on the 164.04-36 region where the daily bull channel top and 100-DMA are located. Divergence on the daily momentum study is a concern for bulls with daily studies at O/B levels. Bears now need a close below the daily bull channel base to confirm an easing of bullish pressure and below 162.00 to reconfirm a bearish bias and initially focus on 159.91-160.80.

EUROSTOXX: 3239.87 Support Remains Key
eurex_122916-2

  • RES 4: 3394.83 High Dec 7 2015
  • RES 3: 3345.20 High Dec 17 2015
  • RES 2: 3314.28 High Dec 29 2015
  • RES 1: 3281.35 2016 High Dec 27 2016

PREVIOUS CLOSE: 3278.72

  • SUP 1: 3259.27 Low Dec 22
  • SUP 2: 3239.87 Low Dec 16
  • SUP 3: 3206.82 High Dec 12 now support
  • SUP 4: 3172.01 Hourly support Dec 8

COMMENTARY: Marginal fresh 2016 and 12 month highs have so far lacked follow through as divergence on the daily momentum study continues and the daily slow stochastic remains very O/B. Initial support is noted at 3259.27 but bears need a close below 3239.87 to hint at a correction with below 3178.88 now needed to confirm a break of the 21-DMA and a shift in focus to 3109.61. While 3259.27 supports immediate focus remains on 3314.28-3394.83 last seen in Dec 2015.

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