Dollar under pressure as Santa’s rally continues on Wall Street

During Wednesday’s Asian session, Japan will release trade data. No change in interest rates is expected from China. The key report of the day will be the UK inflation figures. Later in the day, more US housing data is due, the Swiss National Bank will release the quarterly bulletin, and the Bank of Canada meeting minutes will be published. Santa’s rally on Wall Street will be watched closely. 

Here is what you need to know on Wednesday, December 20:

The US Dollar Index (DXY) accelerated its downward movement but remained above December lows. The DXY lost more than 0.30% and fell towards 102.00. Stocks on Wall Street rose again, with the Dow Jones reaching a new all-time high close. The 10-year Treasury yield remain near 3.90%.

Data from the US housing sector came in mixed on Tuesday. Housing Starts unexpectedly rose to 1.56 million, surpassing the market consensus of 1.36 million. However, Building Permits declined to 1.46 million, slightly below the forecast of 1.47 million. More housing data is expected on Wednesday with the release of Existing Home Sales. Additionally, the CB Consumer Confidence survey is also due.

EUR/USD rose but was unable to reclaim 1.1000. The bias remains on the upside as the pair consolidates around 1.0970. On Wednesday, Germany will release the Producer Price Index (November), while Eurostat will report on October’s Current Account, Construction Output, and December’s Consumer Confidence.

GBP/USD trimmed its gains late on Tuesday, falling towards 1.2700. It holds firm above the 20-day Simple Moving Average (SMA), with the upside limited by the strong resistance area around 1.2800. Critical UK data is due on Wednesday, with consumer and wholesale inflation figures.

The “dovish hold” from the Bank of Japan weighed on the Japanese Yen on Tuesday, causing it to weaken sharply. The BoJ did not provide a timeframe for liftoff, and Governor Kazuo Ueda mentioned the difficulty of presenting a plan to exit the negative interest rate policy. USD/JPY initially jumped from 142.80 to 144.95, but then retraced under 144.00 amidst a weaker US Dollar and declining global yields. The overall trend remains bearish. Trade data from Japan is due on Wednesday.

USD/CHF hit four-month lows under 0.8600 and is set to test the 2023 low around 0.8550. The Swiss National Bank (SNB) will release its quarterly bulleting on Wednesday. 

The Consumer Price Index rose 0.1% in November on a monthly basis, against expectations of a 0.2% decline. The annual rate remained at 3.1%. The Canadian Dollar (CAD) rose across the board after the data. USD/CAD resumed the downside after a short-lived rebound and posted the lowest daily close since early August below 1.3350. The Bank of Canada (BoC) will release the Summary of Deliberations on Wednesday. 

Analysts at TD Securities on Canadian CPI:

Today’s report should reinforce that underlying price pressures are still not consistent with a sustained return to 2.0% inflation, and that any discussion of near-term Bank of Canada easing remains premature without further evidence on this front.

AUD/USD broke above 0.6730 and jumped to 0.6774, reaching the highest level in almost five months. This was driven by broad-based weakness in the US Dollar and improved risk appetite. The rally in commodity prices also provided support to the Australian Dollar. 

Gold prices rose but struggled to sustain gains above $2,040, raising doubts about further short-term advances. Silver reclaimed $24.00 but failed to hold above the 20-day Simple Moving Average. For XAG/USD (Silver/US Dollar) to pave the way for sustainable gains, it would need to surpass $24.30.

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