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Trading Signals and Trade Ideas From FCA Regulated Experts

Markets were uneasy over near-term coronavirus developments, especially in China.

Posted: 7th January 2022

Trade Ideas & Daily market report January 7th 2022

Market highlights.

  • Risk conditions were calmer on Thursday, but still brittle as markets continued to focus on potential Fed tightening.
  • US bond yields continued to move higher with the 10-year yield at 9-month highs.
  • Markets were uneasy over near-term coronavirus developments, especially in China.
  • Wall Street equities were little changed with a further net retreat for the Nasdaq index.
  • Asian equities secured limited gains with caution ahead of the US jobs data.
  • The dollar held firm on yield grounds, but failed to extend gains.
  • EUR/USD settled close to 1.1300 with short covering providing an element of support.
  • Sterling held a firm overall tone on Bank of England tightening expectations with EUR/GBP close to 22-month lows.
  • The Australian dollar recovered only slightly from intra-day lows with cautious sentiment.
  • The Canadian dollar secured a measured net gain amid strong trade data and gains in oil prices.
  • Oil prices were resilient despite fragile risk conditions, underpinned by short-term supply outages.
  • Precious metals declined sharply as bond yields moved higher.
  • Cryptocurrencies remained under pressure as bitcoin hit a 3-month low.

EUR/USD

German factory orders increased 3.7% for November after a 5.8% decline the previous month and above consensus forecasts of 2.1%. Consumer prices increased 0.5% for December with the year-on-year inflation rate increasing to 5.3% from 5.2%. This was above consensus forecasts of 5.1% and the highest rate since July 1992.

EUR/USD was resilient into the New York open with support below 1.1300 and it gradually edged higher as the single currency found some support on the crosses with a peak just above 1.1330. The Euro remains a key funding currency with a reluctance to sell given fragile risk conditions.

US initial jobless claims increased slightly to 207,000 in the latest week from 200,000 previously and slightly above market expectations of 200,000 while continuing claims increased to 1.75mn from 1.72mn previously.

The latest employment data will be released on Friday with increased confidence in a strong release following the ADP data on Wednesday.

The ISM non-manufacturing index retreated to 62.1 for December from 69.1 in November and below expectations of 67.0. The new orders component also declined to 61.5 from 69.7 with a slowdown in the rate of business activity growth. There was a slower increase in employment for the month while supply-side issues eased slightly.

The prices index, however, increased to 82.5 and the third strongest reading on record.

The dollar overall found support on dips with expectations of a tighter Federal Reserve policy continuing to underpin the currency and EUR/USD dipped below 1.1300 towards the European close. The dollar was unable to generate further momentum and the pair stabilised just below this level.

Tight ranges again prevailed on Friday ahead of the US jobs data and EUR/USD traded close to 1.1300 as risk appetite held steady.

USD/JPY

US Treasuries were little changed at Thursday’s New York open with the 10-year yield holding above 1.70% while US equity markets were little changed.

The US overall trade deficit widened to $80.2bn for November from $67.2bn the previous month with a significant increase in imports. The monthly deficit was just below record highs, but the 2021 deficit is likely to hit a record high which could unsettle the dollar if equity markets lose traction.

St Louis Fed President Bullard stated that the first rate hike could come in March and he also forecast three rate hikes this year. San Francisco head Daly stated that the Fed was closing in on achieving its two goals in the short run. She also added that inflation had been higher than she was comfortable with for some time.

Risk conditions remained fragile after the New York open with the dollar overall edging lower. US equities were little changed with USD/JPY settling around 115.85.

Asian equities secured a limited recovery on Friday, although there were still reservations over the Chinese outlook given the risk of further coronavirus restrictions.

USD/JPY was held just below 116.00 after hitting selling interest above this level while EUR/JPY was close to 131.0.

Sterling

The UK PMI services-sector index was revised higher to 53.6 for December from the flash reading of 53.2, although this was still the lowest reading for 10 months. There was a further sharp increase in charges by companies, although the rate of increase declined slightly for the first time since August. The latest Bank of England survey of financial officers indicated that companies expected to increase prices 5% in the year ahead compared with 4.2% in the previous survey.

Sterling secured an element of support from optimism that further coronavirus restrictions would be avoided. The UK currency, however, was hampered by the less confident tone surrounding risk appetite as UK equities posted a sharp correction.

GBP/USD did find support just below 1.3500 with a recovery to around 1.3530 while EUR/GBP was unable to make significant headway.

The Pound held firm on Friday with markets continuing to monitor risk conditions and GBP/USD traded just below 1.3550 with EUR/GBP slightly below 0.8350.

Swiss franc

The Swiss franc was unable to make headway on Thursday despite the more fragile tone surrounding risk appetite. The overall global yield structure tended to have a negative franc impact as yields increased elsewhere, although there were still important reservations over selling.

EUR/CHF tested the 1.0400 area, but failed to break through this level while USD/CHF tested the 0.9200 area. The franc edged lower on Friday with EUR/CHF attempting to hold above 1.0400 while USD/CHF traded just above 0.9200 as yield spreads sapped support for the Swiss currency.

AUD/USD + USD/CAD

The Australian dollar remained on the defensive during Thursday as risk appetite remained fragile. With a solid US dollar tone, AUD/USD was held around 0.7160 at the European close.

There were further reservations over domestic coronavirus developments and AUD/USD consolidated around 0.7160 on Friday with markets also monitoring Chinese developments.

The Canadian trade surplus widened to C$3.1bn for November from C$2.3bn the previous month as export growth outpaced imports on the month.

The data provided an element of currency support and the currency was also boosted by renewed strength in oil prices with USD/CAD retreating to 1.2735 from highs just above 1.2800.

The Canadian dollar held firm on Friday ahead of the jobs data with USD/CAD around 1.2715.

NOK+ SEK

The Norwegian krone was subjected to choppy trading conditions on Thursday with fragile risk appetite limiting support.

Gains in energy prices limited the threat of further losses and EUR/NOK held around 10.05.

Volatility eased on Friday with EUR/NOK around 10.04 and USD/NOK near 8.88.

The Swedish krona found some support at intra-day lows with EUR/SEK settling around 10.33. There was little change on Friday with USD/SEK around 9.14.

Equities

Euro-zone equities opened sharply lower following overnight losses on Wall Street and were unable to regain significant ground as risk appetite remained more fragile.

The German DAX index declined 1.35% with a 1.5% retreat for the Eurostoxx 50 index.

Major UK stocks dipped sharply on Thursday with the global risk tone more vulnerable. There were also reservations over the potential for higher interest rates in the UK which sapped support and the FTSE 100 index declined 0.9%.

Wall Street sentiment remained brittle on Thursday with further concerns over the impact of higher yields and potential Fed tightening, although selling was contained. There were further limited losses in the tech sector with the S&P 500 index closing 0.1% lower.

US futures edged higher on Friday with Asian bourses overall in positive territory, but with fragile overall confidence.

Japan’s Nikkei 225 index closed marginally lower with a 1.3% gain for the Australian ASX index.

China’s Shanghai index traded 0.2% lower with Hong Kong’s Hang Seng index 1.5% higher in late trading.

Commodities

Oil prices posted net gains on Thursday despite fragile global risk appetite and a firm US dollar.

A dip in Libyan output and increased unrest in Kazakhstan were significant in underpinning prices on a short-term basis. There was still an element of caution surrounding coronavirus developments.

WTI posted gains above $80.0 p/b, but failed to hold this level.

Risk sentiment held steady on Friday, but WTI was again unable to above $80.00 p/b with Brent around $82.50 p/b.

Precious metals retreated further on Thursday with the combination of a firm dollar and increase in US yields sapping support.

Gold dipped below $1,800 to lows near $1,790 per ounce while silver posted sharp losses to near $22.00 per ounce.

Gold settled close to $1,790 per ounce on Friday with silver unable to regain ground.

Cryptocurrencies

Cryptocurrency volatility was more contained on Thursday despite choppy trading conditions across asset classes.

Bitcoin found some support below $42,500, but hit selling interest above $43,000.

Crypto assets were undermined by vulnerable risk conditions.

Markets were continuing to monitor developments in Kazakhstan as power and internet outages had an important impact in hurting mining activity.

There was another round of selling in Asia with bitcoin dipping to 3-month lows below $41,000 before stabilising.

Ether initially rallied, but was unable to regain the $3,500 level and there was another round of selling to 3-month lows below $3,150 before selling eased.

Calendar

Major events for the day ahead: (times in GMT)

13.30: US employment report

13.30: Canada employment report