Currency Analyst since 2010

Forex trading plan for December 3

By Elizabeth Belugina

US dollar index recovered the losses it suffered on Tuesday gaining especially versus the euro, British pound and Japanese yen. According to the data from ADP, the US economy added 217K jobs in November (vs. the forecast of 191K). Unit labor costs rose by 1.8% vs. 1.1% expected – another positive development. The Federal Reserve’s Chair Janet Yellen will likely confirm that December 16 FOMC meeting will be ‘live’ meaning that the Fed’s policy may be changed. Yellen will speak later on Wednesday and then testify at 15:00 GMT on Thursday. Note that America will release ISM non-manufacturing PMI as well at 15:00 GMT on Thursday, though the release probably won’t be the big market mover ahead of the nonfarm payrolls on Friday.

EUR/USD returned to the 1.0600 area and below on Wednesday. Traders await the results of the ECB meeting. The central bank will announce its interest rate decision at 12:45 GMT (the cut in deposit rate is likely), and at 13:30 GMT Mario Draghi will host a press conference. At the ECB’s last meeting in October Draghi said that the regulator would reconsider its policy in December hinting at the possibility of additional monetary easing in the form of QE monthly increase and overall extension. Draghi also noted that the option of reducing deposit rates had been discussed. Euro zone’s November inflation figures released on Wednesday came out lower than expected thus confirming the case for the ECB to ease its policy. Still, much of the easing has been already priced in EUR/USD’s rate since October as the pair descended from 1.13 on October 22 to the current range around 1.06. We are quite certain that the ECB will act on Thursday, the question is whether the central bank will do just enough to keep the euro from rising or do more than expected by the market and drive the single currency to 1.0500 and lower? With all the speculation about potential steps of the ECB, it’s difficult to say what is currently priced in.  At this point, the market has, as far as we can judge, priced in 15-point deposit rate cut, an extension of QE and partly priced in the increase in monthly purchases. Remember that Mario Draghi is known for delivering more than the market thinks. The CFTC hasn’t released new data on the large players’ positioning, but we can assume that although the number of the euro shorts has increased, there’s room for more. As a result, the risks for the euro are definitely to the downside. Support is at 1.0520/00 and 1.0460. Beware of spikes in the 12:40-14:00 GMT period.

GBP/USD slid below 1.5000. British construction PMI disappointed and there’s only the UK services PMI due at 09:30 GMT on Thursday. The pair is testing support at 1.4950 and may try to hold above this area, though the risks of a slide to 1.4888 and much further have significantly increased. Resistance is at 1.5030, 1.5100 and 1.5150. USD/JPY wants to test 123.60. An increase to 124.00 will make USD sellers return. Support is at 123.00. AUD/USD paused at 0.7340, near the top of the short-term uptrend. Australia will release trade balance early on Thursday. Lower data will make Aussie slide to support at 0.7280/50. Next resistance is at 0.7380. 

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