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by Charalambos Pissouros

US ISM Manuf. PMI Disappoints, RBA Holds Rates Steady

Global equity indices and the US dollar fell yesterday after Trump decided to impose tariffs on Brazil and Argentina, as well as after the ISM manufacturing PMI for November slid further into the contractionary territory. The Aussie was the main gainer, coming under buying interest after the RBA held interest rates on hold, and hinted that it may stay sidelined longer than the market has thought.

US Manufacturing Contracts Further, AUD Gains After RBA Decision

The dollar traded lower against all but one of the other G10 currencies. It underperformed the most against AUD, NZD and CHF in that order, while it lost the least ground versus GBP, JPY and SEK. The greenback gained fractionally only against CAD.

USD performance G10 currencies

In the equity world, major EU and US indices tumbled, with the negative sentiment rolling, but to a lesser extent, into the Asian session today. The drivers may have been Trump’s decision to impose tariffs against imports from Brazil and Argentina, as well as the slide in the ISM manufacturing PMI for November. Yesterday, during the European session, using his twitter account, US President Donald Trump said that he will restore tariffs on steel and aluminum shipped from Brazil and Argentina, as both nations have been presiding over a massive devaluation of their currencies. He also called for the Fed to lower rates further so that countries no longer take advantage of the strong dollar.

Major global stock indices performance

Risk sentiment, as well as the US dollar, was hurt further after the ISM manufacturing index slid to 48.1 in November from 48.3, instead of rising to 49.2 as the forecast suggested. This was the fourth straight month of contraction, something that slashed the optimism over the US economy, which was sparked by recent upbeat reports, like the upside revision of the US GDP for Q3. The disappointing ISM print also led the Atlanta Fed to cut its GDP estimate for Q4 to +1.3% from 1.7%.

As for our view, risk sentiment could stay subdued for a while more. Last week, optimism surrounding the US-China saga helped the US indices to hit new record highs. However, Trump’s signing of the legislation supporting Hong Kong protests angered China, something that weighed on hopes over signing a “phase one” trade deal. Thus, the blend of headlines surrounding the global trade front, as well as the downbeat ISM print, may have raised concerns over the performance of the US economy heading into the new year, which allowed market participants to keep bets over more Fed cuts on the table. According to the Fed funds futures, they are still fully pricing in another quarter-point reduction for September.

Back to the currencies, the Aussie was the main gainer among the G10s, coming under buying interest following the RBA interest rate decision. The Bank kept interest rates unchanged at 0.75%, but the statement accompanying the decision may have been less dovish than many have expected, especially after the minutes of the prior meeting revealed that the Board discussed easing further back then.

This time, officials said that they decided to hold rates steady given the long and variable lags in the transmission of monetary policy. Although they reiterated that they will continue to monitor developments, including in the labor market, and ease policy further if needed, the aforementioned addition suggests that they are more comfortable on the sidelines than investors have believed. Ahead of the meeting, investors were expecting another cut to be delivered in April. Now, that timing was pushed back to July.

S&P 500 – Technical Outlook

Yesterday, the S&P 500 took a deep dive, breaking the short-term upside support line drawn from the low of October 23rd. The index found support near the 3108 area, from which it rebounded slightly higher and managed to recover some of its losses. We may see another small push to the upside, but if the price is unable to get back above that upside line, the sellers might take advantage of the higher price and drag the index lower, hence why will remain cautiously-bearish for now.

As mentioned above, a slight push higher could test the 3128 hurdle, which is the low of November 26th, or the pair might test the aforementioned upside line from underneath. If the S&P 500 struggles to push above that line, the sellers may step in and drag the price back down, initially aiming for the yesterday’s low, at 3108, a break of which might clear the path to the 3091 level, marked by the low of November 21st.

Alternatively, if the price moves back above that upside line and climbs above the 3142 barrier, which acted as a strong support area between November 27th and 29th, this could attract more buyers into the game and the S&P 500 might drift towards the current all-time high, at around 3158, which was reached on the cash index yesterday. If that area is a no-match for the buyers, its break would push the price into the uncharted territory.

S&P500 cash index 4-hour chart technical analysis

AUD/USD – Technical Outlook

After breaking out of a falling wedge pattern, AUD/USD moved sharply to the upside yesterday, wiping out some key resistance barriers on its way up. Given the steep uprise, there is a possibility to see a small correction back down first, before another leg of buying, hence why we will stay somewhat bullish, at least in the near time.

If the pair initially struggles to make its way above the 0.6849 barrier, marked near an inside swing low of November 11th and near an inside swing high of November 13th, this could send the rate back down for a small correction. That said, if AUD/USD finds good support near the 0.6825 hurdle, which is yesterday’s inside swing high, then the bulls might re-enter the game and we could see the pair climbing to the 0.6849 zone again, a break of which would set the stage for a higher high. This is when we will target the 0.6865 area, marked near the low of November 7th and near the high of November 11th.

On the other hand, if the slide during the above-discussed correction continues and the rate falls below the 0.6814 hurdle and its 200 EMA on the 4-hour chart, this might spook the bulls from the field temporarily. The bear could be more than happy to take advantage of the situation and send the pair towards the 0.6795 zone, a break of which could clear the path to the 0.6779 level, marked by the inside swing high of November 29th.

AUD/USD 4-hour chart technical analysis

As for Today’s Events

During the European morning, we get Switzerland’s CPIs and the UK construction PMI, both for November. The Swiss yoy inflation rate is expected to have increased somewhat, but to have remained in negative territory. Specifically, it is forecast to have ticked up to -0.1% yoy from -0.2%. The UK construction PMI is anticipated to have risen to 44.5 from 44.2.

With regards to the energy market, we get the API (American Petroleum Institute) weekly report on crude oil inventories, but as it is always the case, no forecast is available.

As for tonight, during the Asian morning Wednesday, we have Australia’s GDP for Q3, the qoq rate of which is expected to have remained unchanged at 0.5%. That said, this would drive the yoy rate up to +1.7% from +1.4%, and it could add to expectations that RBA officials are likely to stay on hold for a while longer. We also get China’s official services and composite PMIs for November, as well as Caixin services print for the month.

As for the speakers, we have one on today’s agenda: ECB Executive Board member Benoit Coeure.

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