FX market outlook

FX market outlook

Posted on Wednesday, November 23 2016 at 8:44 am GMT+0000

Dollar consolidates around 111 yen; oil lower on fading hopes of OPEC production cut deal.


The Asian session was relatively quiet due to a public holiday in Japan and due to the US Thanksgiving holiday tomorrow, which resulted in thin liquidity. The US dollar was unable to extend Tuesday’s gains versus the yen. Oil fell on reports that Iran and Iraq have yet to cooperate on output cuts.

The dollar index which gauges the US currency against a basket of six major currencies, slid off a 13 1/2-year peak of 101.48 reached last Friday and fell below 101 points in today’s Asian session. There has also been a slight pull-back in US Treasury yields, which also reduces demand for the US currency.

The dollar struggled to rise above Tuesday’s high of 111.34 yen that was fueled by upbeat US economic data and it gave back some gains today to drop below the key 111.00 level in late Asian session trading.

While the dollar’s momentum this week has slightly eased, the US currency is still expected to be supported by the market’s expectation of a rate hike by the Federal Reserve at its policy meeting in December. Strong data out on Tuesday will be good news for the data-dependent Fed. Yesterday, existing home sales numbers rose in October to their highest level in more than 9-1/2 years and this was dollar-positive.

The euro has managed to record daily closes above the key psychological level of $1.0600 so far this week, after having recovered from a near one-year low of $1.0568 touched last week. The single currency traded to a session high of $1.0642 in Asia today.

Sterling has experienced some volatility this week. After touching a high of $1.2511 yesterday, cable consolidated near the $1.2400 level in Asia. Later in the day, focus will be on the UK Autumn statement which will be delivered by the Chancellor of the Exchequer Philip Hammond.

The pause in the US dollar’s strength has helped the Australian dollar bounce from five-month lows of $0.7310 hit on Monday and the aussie has steadily climbed to a high of $0.7443 in Asian trading today.

Easing in the greenback also helped lift gold prices, which traded above $1210 today.

Oil prices fell on doubts of an OPEC deal to cut production by the November 30 meeting in Vienna. There were reports out yesterday that Iran and Iraq were hesitant to cooperate on trimming output levels. WTI prices slid to $47.15 a barrel yesterday on these reports, before steadying back near $48.00 today. A high of $49.17 was hit yesterday.

Aside from the UK Autumn Statement later today, focus will also be on PMI data out of the Eurozone and on US durable goods orders, as well as the minutes of the Fed’s November policy meeting.