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Market Wrap - December 2019

   

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The main issue in December was the British election and its possible impact on Brexit plans.  British Prime Minister Boris Johnson returned to Downing Street with a big majority after the Conservatives easily accounted for Labour in its traditional heartlands.  Mr Johnson said it would give him a mandate to "get Brexit done" and take the United Kingdom out of the European Union next month. Earlier in the month, the U.S. Federal Reserve’s (Fed) Federal Open Market Committee had its two-day policy meeting, keeping interest rates steady, as widely expected.  Unlike many previous meetings, the decision to keep rates unchanged was unanimous. After three straight interest rate cuts this this year, the Fed kept the funds rate in a target range of 1.5%-1.75%. More importantly, the Fed indicated that no action is likely next year while there is persistently low inflation.

EURUSD

During the month of December, the EURUSD has spent most of its time trading around the key 1.11 level.  In the second half of the month the EURUSD has rallied well and been able to push through the current key level of 1.11 which has been providing stiff resistance for several weeks.  It has found some support at this level which has allowed it to surge higher to close out the month back up to the other key level of 1.12 which has provided stiff resistance. The 1.10 level has provided strong support in the last month or so propping the currency pair up after the fall to start the month, and may be called upon again should support at 1.11 fail.

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In new President Christine Lagarde’s first monetary policy meeting, the European Central Bank (ECB) kept its rates unchanged, voting to keep the main deposit rate at the historic low of -0.5%.  The ECB reiterated its previous guidance that rates will stay at the current level or lower until the central bank has seen the inflation outlook “robustly converge” to a level close to but below 0.2%.  The net asset purchases that started in November at a monthly rate of 20 billion euros will continue to run “as long as necessary” to reinforce the accommodative policy stance, said the ECB. After the meeting President Lagarde suggested that growth slowdown was stabilizing however recent data “pointed to continued muted inflation pressures and weak euro area growth dynamics.” 

GBPUSD

The GBPUSD has experienced a volatile December moving sharply up to an 18 month high above 1.35 back down to the current key level of 1.30 and below, which has been significant for the last two months.  Only a few weeks ago the GBPUSD broke through the resistance level at 1.30 and moved to a nine month high just above 1.32, before the surge higher to above 1.35. For the previous six weeks or so the GBPUSD had traded in a narrow range consolidating under resistance at 1.30, which has become a level of significance, and as expected is now offering support now that the sterling has declined.  

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At its final meeting for the year, the Bank of England (BOE) has held its main interest rate steady at 0.75%, voting 7-2 in favour of keeping the current level.  The BOE maintained its dovish stance with its accompanying statement: “If global growth fails to stabilize or Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected U.K. recovery.”   The central bank also revised its 4th quarter UK GDP forecast down to 0.1%.  “Household consumption has continued to grow steadily, but business investment and export orders have remained weak. Financial markets have remained sensitive to domestic policy developments,” the BOE said in a statement.  The BOE has also been tackling the uncertainty of Brexit for some time now. BOE Governor Mark Carney will be departing the central bank at the end of January after more than seven years in the role, as British Prime Minister Boris Johnson is yet to name a successor.

AUDUSD

The AUDUSD headed in one direction only in December – up.  Throughout the month, the AUDUSD has moved strongly from support at 0.6750 up to a five month high near 0.70.  It has moved sharply at times breaking strongly through resistance at the key 0.6850 level recently before enjoying solid support from this level.  Before its strong move higher, the AUDUSD had bounced strongly off the key support level at 0.6750 after spending the last five weeks steadily but surely easing away from a three month high above 0.69 and moving back down below the key 0.6850 level.  In doing so it returned to its popular range between 0.6750 and 0.6850, and it wouldn’t surprise many if it was to return there again, despite its strong surge to finish the month.

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In the first week of the month, the Reserve Bank of Australia (RBA) kept the official cash rate on hold at a historic low of 0.75%.  However, the RBA is now torn between stimulating growth and rising house prices, having just posted its fifth consecutive month of gains, moving strongly in November.  So, while the three rate cuts since June have failed to help the unemployment rate, which has moved up to 5.3%, it has boosted house prices again. The central bank governor Philip Lowe has adopted a positive view on house prices.  "The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth," Dr Lowe said in a post meeting statement.  "There are further signs of a turnaround in established housing markets. This is especially so in Sydney and Melbourne, but prices in some other markets have also increased recently. In contrast, new dwelling activity is still declining and growth in housing credit remains low,” he said.

US30

The US30 index has enjoyed a strong December moving through to all-time highs, after recovering from its dip at the end of November.   In the last three weeks the US30 index has rallied well back above 28000 reaching new all time highs again. It had fallen sharply away from the then all time high above 28000 several weeks ago, and was possibly eyeing off support at 27000 given the rate it was falling, however it has now regained that lost ground and has settled back above 28500.  Throughout October it rallied well and moved back above the current key level of 27000 after the index was ably supported by the 26000 level which propped up the index earlier.

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The U.S. Federal Reserve’s (Fed) Federal Open Market Committee had its two-day policy meeting last week and as widely expected, the central bank kept interest rates steady.  Unlike many previous meetings, the decision to keep rates unchanged was unanimous. After three straight interest rate cuts this this year, the Fed kept the funds rate in a target range of 1.5%-1.75%.  More importantly, the Fed indicated that no action is likely next year while there is persistently low inflation. While Fed officials will obviously continue to monitor conditions and economic data, the central bank stated that monetary policy is likely to stay where it is for an unspecified time.  “The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective,” the statement said. “The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate,” the committee added.

Gold

After not moving a lot during the month, gold finished December with a strong surge higher to a six week high back above the key $1500 level.  It had spent several weeks moving very little trading right around the $1475 level, as it remained in a narrow range trading roughly between $1460 and $1480.  It had spent this time consolidating after dropping sharply back through the key $1500 level to a three month low below $1450 last month. For the prior two months gold had settled around the current key $1500 level, moving back and forth around this level, seemingly content to not move anywhere else, so it now may be significant that it has been able to return to this key level, where it may now enjoy some support from.  

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In recent past, gold has been weighed down by a stronger US dollar which has recently found support from expectations that the U.S. Federal Reserve will not cut interest rates soon.  The signs that a trade deal being signed is not far away has also placed pressure on gold, as it has decreased the appeal for investors to get into traditional safe havens like gold. According to U.S. Treasury Secretary Steven Mnuchin, the phase one trade agreement reached last week between China and the United States will boost global growth.  “For a very long period of time the U.S. was open to China, China was not open to the U.S. There were very strong restrictions and for the first and second largest economy in the world, there should be more trading back and forth and that’s what we’ve been working on, and I think these agreements will not only be good for the U.S., but will be very good for global growth,” he added.

UK Oil

After meeting resistance at the key $63 level for several weeks, UK Oil has been able to spend most of December moving higher to a three month high near $67.  During this time, it has found some support at the $63 level which bodes well for it to remain above there. Earlier last month, UK Oil moved well up to resistance at $63 off support at $60.  It has traded between $58 and $63 for the most part of the last two months and selling has been steady at anything above $63 indicating how significant this level is. This makes its recent price action telling and an indication of possible higher prices.

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Data has shown Chinese exports declined for a fourth straight month, which has intensified concerns about the global economy with the ongoing trade war between China and the United States copping the blame.  The two superpowers have been trying to agree to a trade deal, however negotiations and meetings have now dragged on for months. According to China’s Assistant Commerce Minister Ren Hongbin, China is hoping an agreement can be reached as soon as possible with the United States.  At their conference in Vienna late last week the Organization of the Petroleum Exporting Countries (OPEC), Russia and other oil-producing nations agreed to additional oil production cuts to support oil prices, increasing its production cuts by another 500,000 barrels per day (BPD).  This brings the total production cuts from OPEC and its allies to 1.7 million BPD. In the annual World Oil Outlook, OPEC revised its forecast lower for global oil demand growth over both the medium-term and long-term. In its report, OPEC stated that the last year has been “challenging” for energy markets highlighting “signs of stress” in the world economy and tough market conditions.

 

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

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