JFD Team | Dec 01, 2020 03:33AM ET
Equities retreated on Monday, perhaps due to end-month portfolio rebalancing, but Asian stocks traded higher today, as China’s Caixin PMI rose to a more-than-three-year high. Overnight, we also had an RBA policy decision, with officials standing pat and reiterating their readiness to do more if needed, while today, Fed Chair Powell and Treasury Secretary Steven Mnuchin will testify before Congress.h2 AUSSIE UNFAZED AFTER RBA, POWELL AND MNUCHIN TESTIFY/h2
The US dollar traded higher against the majority of the other G10 currencies on Monday and during the Asian session Tuesday. It slightly underperformed only versus GBP, CAD, and NZD, while it gained the most against SEK, JPY, and CHF.
Although DAX is not having the same strong moves higher, as it had in the first half of November, still, the index continues trade above a short-term upside support line taken from the low of November 10th. However, in order to get a bit more comfortable with larger extensions to the upside, we would first prefer to wait for a push above the highest point of September, at 13462.
If, eventually, we do see a pop above that 13462 barrier, this will confirm a forthcoming higher high, possibly opening the door to some higher areas. DAX might then travel to the 13655 zone, which is the inside swing low of February 18th, where the price might get halted for a while. The index may even retrace back down a bit, however, if it stays above the previously mentioned 13462 area, the buyers could re-enter the game again. If the buying pressure is able to lift the price above the 13655 hurdle, the next possible target could be at 13828, marked by the highest point of February.
On the downside, if the aforementioned upside line surrenders, this may signal a change of the short-term trend, potentially inviting a few more sellers into the arena. DAX could then drop to the 13033 obstacle, or to the 12927 zone, marked by the low of November 13th, which is also near the 200 EMA. The slide might initially stall there for a bit, however, if the sellers are still feeling comfortable, the next potential aim might be at 12720, marked by the high of November 23rd.
AUD/USD continues to trade inside a short-term rising channel pattern, which has been in play from around mid-November. After last week’s test of the upper bound of that formation, the pair corrected back down a bit. That said, if the rate remains inside that pattern, we could see AUD/USD continuing to slowly grind higher. For now, we will take a somewhat positive approach.
A small decline could bring the pair to yesterday’s low, at 0.7340, or to the lower side of the rising channel. If that area provides good support and a good territory for a rebound, the pair may end up aiming for the 0.7413 hurdle, marked by the highest point of September. Initially, the pair might stall there for a bit, but if the buying doesn’t end there, the next target may be the upper side of that rising channel.
Alternatively, if the lower bound of the aforementioned pattern breaks and the rate also slides below the 0.7310 zone, marked by an intraday swing low of November 24th, that would also place the pair below the 100 EMA on our 4-hour chart. More sellers could see this as a good opportunity to step in. AUD/USD might then slide to the 0.7254 hurdle, marked by the low of November 19th, a break of which may clear the way for a test of the 0.7222 level, marked by the low of November 13th.
Today, oil traders were expecting to learn the outcome of the OPEC+ meeting. However, the group has decided to delay talks until Thursday, according to sources, as members still disagree on whether they should increase output or extend the existing cuts. The group had been expected to increase oil production by 2mn barrels per day from January, but according to media chatter, it is now expected to delay those plans for at least three months. So, what does this mean for oil prices? Given that this is the current consensus, a three-month extension is unlikely to rock the boat and thus, we don’t expect any major market reaction. Now in case the extension is six months or more, oil prices are likely to gain, while in case we do get an output increase, we may see an extension of yesterday’s setback.
As for the data, from the Eurozone, we get the preliminary inflation data for November. The headline CPI rate is forecast to have ticked up to -0.2% yoy from -0.3%, while the HICP ex. energy and food print is expected to have stayed unchanged at +0.4% yoy. At its latest meeting, the ECB noted that in December, the new macroeconomic projections will allow a thorough reassessment of the economic outlook and that the Governing Council will recalibrate its instruments as appropriate. In other words, the ECB is very likely to expand its stimulative efforts at the upcoming gathering, and subdued inflation metrics will only add to that likelihood.
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