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Andreas Zanin
Analysis, Market Analysis | December 13, 2023

JASPER’S MARKET SQUAWK 13-12-2023

Fed Pivot View Still Unchanged

Investors didn’t see the slight uptick in inflation as a major catalyst for future policy change on Tuesday, but bets for a March cut were pushed back to May. US stocks still hit fresh highs for the year as markets wait patiently for confirmation of a Fed pivot at today’s FOMC meeting.

Chart: EURUSD

Key Factors for Today

  • Fed Expectations Unchanged Despite Inflation Uptick
  • Dollar Falters as Markets Still Anticipate Fed Pivot
  • Oil Plummets to June Low on CPI Uptick, Demand Concerns
  • UK Wages Continue to Decline, Bringing Cut Expectations Forward
  • German Investor Morale Ascends on ECB Rhetoric Shift
  • Japanese Data Boosts Confidence for BOJ Exit Strategy

Dollar Closes Session Lower Despite CPI Uptick

US CPI came in unchanged at an annual growth of 3.1%, but core inflation rose 0.3% in November. ‘Supercore’ inflation, which excludes food, energy and housing, indicated some pressures remain. While some traders trimmed bets on rate cuts, markets still bet on a Fed pivot by over 10bps in 2024. The dollar came under pressure by the session’s close, as demand at a 30-year bond auction eased stock players’ worries. The index still recoiled most of its intraday losses, closing 0.22% lower to 103.80. Support remains at 103.57, with resistance expected at 104.40.

Oil to June Low After US CPI Rises Demand Fears

Oil fell around 4% to a June low of $68.70 a barrel due to concerns over softening demand (and oversupply) and the unexpected uptick in US CPI. Higher Fed rates could slow economic growth and soften demand for oil. In addition, the EIA lowered its 2024 Brent price forecast by $10 a barrel to $83. The drop transpired despite the API reporting a big stock draw of 2.349M barrels, contrasting expectations of a 0.594M build. While trading below $71.40 a barrel, support can be expected at $66.80 and below there at $63.60.

UK Wages Continue to Fall, Adding to Cut Expectations

UK wage growth slowed to 7.3% in the three months to October from 7.8% prior, suggesting easing pressures but also rising risk of recession. Despite exceeding the BOE’s target, rate cut expectations moved forward, and UK gilt yields fell. Cable ended the session mixed despite overall dollar weakness, with $1.2616 and 1.25 seen as the next crucial levels for direction.

German ZEW Improved Because of ECB Rhetoric Shift

Germany’s ZEW economic sentiment index rose to 12.8 points in December from 9.8 points in November, beating analysts’ forecasts. German investor morale improved as expectations for an interest rate cut by the ECB grew in the medium term. The Euro Area report also improved from 13.8 expected to 23, with EURUSD up 0.28% to $1.07940. $1.0836 and $1.0733 are important levels to watch during today’s FOMC.

Improving Japanese Data Support BOJ Unwinding

Japan’s ‘Tankan’ survey showed big manufacturers’ sentiment index rose to 12 from 9 three months ago, suggesting improving economic conditions to unwind BOJ stimulus. However, Governor Kazuo Ueda has often stressed the need to wait for domestic demand to drive inflation before normalisation. USDJPY remains in a tight range between 146.60 and 144.73, with an imminent breakout expected to drive price action towards 147.30 or 143.90.

On The Docket

  • GB GDP
  • GB Industrial, Manufacturing Production
  • EA Industrial Production
  • US PPI
  • EIA Crude Oil Stock Change
  • Fed Interest Rate Decision
  • OPEC Monthly Report

FX 1-Day Relative Performance (USD)

  • Kiwi 0.62% in red, Aussie at -0.08%
  • Euro and Pound 0.11% in the red zone
  • Loonie down 0.06%, Franc 0.10% lower
  • Japanese yen 0.23% in red territory
  • Gold 0.12% down, Silver deeper at -0.27%
  • WTI and Brent 0.36% and 0.41% in red
  • Natural gas in negative zone by 1.82%
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