The US dollar climbed ahead of the Wednesday's FOMC decision on signs of rising inflation. The Australian dollar was the top performer on Tuesday while the euro lagged. Japanese machine orders and the RBA's Kent are up before Yellen. A new Premium video has been issued and sent to subscribers on the rationale behind the 2 EURUSD trades and rest of 8 trades ahead of the Fed and ECB decisions, in light of the underlining technical developments shaping the EUR and USDX.
The US PPI report doesn't always foreshadow headline inflation but is often a clue. The November report showed pipeline pressures at the highest since February 2012, up 3.1% y/y compared to 2.9% expected. The US dollar got a lift from the report and continued higher for much of the day.
The USD also benefited from Congressional talk that passing the unified tax was imminent. That presents two-sided risks but early details show a 21% corporate tax rate, which is a touch higher than the 20% in the initial bill. What will matter more is how deductions and R&D are credited.
USD/JPY rose as high as 113.75, which was the best since Nov 14. The pair is slowly approaching the tough zone of resistance in the 114-115 range. It's a zone that's been tested four times in the past year and held.
The day ahead could be a big one on that front. If the FOMC hikes rates (an almost sure bet) and delivers some hawkish hints, along with a stimulative tax package, it could clear the way for a dollar rally into year end. However if the Fed decides to stay coy before Powell takes the reigns and the tax plan disappoints, the dollar could just as easily head in the other direction. Ashraf will post a full Fed preview in English and Arabic in Wednesday's early edition of this section.
Before then, some Asia-Pacific data could move markets. The RBA's Kent is due up at 0000 GMT. The market is increasingly expecting the RBA to stay on the sidelines for the first half of 2017 or longer. Yesterday's soft Q3 house price data underscored the challenges.
Another report to note is the October Japanese machine orders report. The consensus is for a 2.9% rise after the 8.1% drop in September.
|Core Machinery Orders (m/m)|
|3.1%||-8.1%||Dec 12 23:50|
|FOMC Press Conference|
|Dec 13 19:30|
Before we start, Litecoin has just hit a new record at $220, up more than 4000% this year. Gold has a virtually unblemished track record as a store of value over 6000 years but that didn't matter in 2017 as Bitcoin dug into its market. Will it be the same in 2018? The New Zealand dollar was the top performer Monday while the pound lagged for the second day. Australian house price data is up next. There are 10 open trades ahead of this week's busy set of central bank meetings & key US data.
The week started off with all eyes on Bitcoin as CBOE had a successful launch. Volume was at 7000 contracts, which is only $119m notional but it certainly can't be called a failure. More importantly, Bitcoin prices climbed above $17000 and were relatively stable (at least by BTC standards). Ultimately, those are all good signs for the near term.
Bad signs, meanwhile, continue to mount in gold. We have no doubt that many gold investors or would-be investors have turned to crypto. At the margins, that means less excitement and buying in precious metals. Anything could change in crypto at a moment's notice but for now, the outflows from gold are considerable and speculative net longs are at 4-month lows.
Technically, the trend is increasingly weak. Last week, gold broke below the October low of $1260 and slid another $12 to $1240 on Monday. The July low of $1200 is a major support level that needs to hold if gold is going to rebound in the months ahead. If not, it could get ugly for the old-fashioned analog store of value.
Looking to the short-term, housing investments have been better than gold for the past five years of the QE era. That's expected to continue in 2018, even as regulators find creative ways to curb speculation. One spot to always watch is Australia where Q3 house prices are due at 0030 GMT. Through Q2, prices were up 10.2% y/y and 1.9% q/q. That's expected to cool to 8.8% y/y and +0.5% q/q. Look for a small reaction in AUD.