Europe Roundup: European bourses struggle to extend gains, oil prices hold near annual peaks as markets await OPEC cuts - Wednesday, December 28th, 2016

Market Roundup

• USD/JPY +0.20%, EUR/USD -0.25%, GBP/USD -0.27%
   
• U.S Dollar finds its feet after a soft start in Asia
   
• DXY +0.22%, DAX -0.03%, Brent +0.7%, Iron +2.73%
   
• 10-Yr Bund yield hits seven-week low-Spread to U.S hits fresh high
   
• IT Dec Mfg Business Conf. 103.5 vs rvsd 102.2 prev
   
• UK Nov Mtg Approvals 40.659k vs 40.851k prev
   
• CH Nov UBS Consumption Indicator 1.43 vs rvsd 1.39 prev
   
• Hitachi Koko headed for sale to US KKR, deal to exceed Y150 bln – Nikkei
   
• Reuters BreakingViews – China’s central bank will lose its longtime leader
   
• China to relax restrictions on foreign investment access more in ’17 – Xinhua
   
• SAFE - Bigger $25.4 bln service trade deficit in Nov, Oct $23.3 bln – Xinhua
   
• Japan Nov retail sales +1.7% y/y, only +0.6% eyed, first rise in 9 months
   

Economic Data Ahead
 

• (1000 ET/1500 GMT) The National Association of Realtors reports U.S pending home sales for the month of November, which are expected to increase by 0.5 percent in November from 0.1 percent in October.
   
• (1630 ET/2130 GMT) API reports Weekly Crude Oil Stock.
   

Key Events Ahead
 

• (1300 ET/1800 GMT) The U.S. Department of Treasury auctions 5-year notes.
   

FX Beat
 

DXY: The U.S dollar index is trading slightly above 103 and it should close above 103.60 for further bullishness. The index held support near 10- day EMA and is currently trading around 103.23. The index is facing resistance around 103.60 and any break above targets 105. On the lower side, any break below 102.72 (10- day EMA) will drag the index down till 101.86 (21- day MA)/100.60. Short term bullish invalidation only below 98.
 

EUR/USD: EUR/USD ends 5 consecutive sessions of gains, trades 0.42 pct lower at 1.0413 as we head into the U.S. session. The pair made a high of 1.04992 on 22nd Dec 2016 and it’s upside is capped by 21- day EMA and any break above that level will take the pair to next level till 1.0613 (daily Kijun-Sen)/1.0670. Short term bullishness only above 1.06700 level. On the lower side EUR/USD is facing strong support at 1.03400 (127.2% retracement of 1.03665 and 1.04720) and any violation below will drag the pair till 1.02835 (161.8% retracement of 1.05047 and 1.08700).The major intraday support is at 1.04300.
 

USD/JPY: USD/JPY rises from session lows at 117.37 after renewed broad based USD demand supported bulls. The pair bounces-off hourly 200-SMA to retest daily tops reached previously at 117.60 levels. USD/JPY is facing strong support at 10-day EMA and slight weakness can be seen only below that level.  It is currently trading around 117.68. The pair’s major resistance is around 119 and break above targets 120. On the lower side minor support is around 116.95 (10-day EMA) and any break below targets 116.54 (Dec 19th 2016 low)/115.70 (21- day MA). 
 

EUR/JPY: Yen largely ignores upbeat Japan retail sales data. has shown a bounce off 20-DMA support, we see scope for further upside. Market sentiment remains largely mixed and uncertain given persistent holiday-thinned light trading. Strength in RSI seen at 61 levels with scope to run further. Break below 20-DMA could see some downside, test of 121 levels then likely. Short-term bearish reversal only below 200-DMA at 118.26.
 

NZD/USD: NZD/USD extends recovery from multi-month lows. Kiwi remains supported amidst broadly weaker US dollar along with tumbling UST yields. Bullish RSI divergence on daily charts supports upside. Stochs still remain at oversold levels, rollover from oversold would provide further confirmation. Pair currently hovering around 50% Fib at 0.6916. We see scope for test of 20-DMA at 0.7034. Bullish invalidation below 0.6855 (major trendline support).
 

Equities Recap
 

European bourses struggle to extend gains while Asian shares closed broadly higher Wednesday.
 

Australia’s S&P/ASX 200 XJO, +1.01 percent ended up 1percent after a four-day weekend, led by a rally among commodities stocks. Hong Kong’s Hang Seng Index HSI, +0.83 percent posted a sharp rebound in late trade on Wednesday to end up 0.8 percent, helped by a surge in China-related shares. 
 

The Nikkei Stock Average, -0.01 percent lost 1.34 points, or 0.01 percent, to end at 19,401.72. Shanghai Composite Index SHCOMP, -0.40 percent closed down 0.4 percent as tightening liquidity towards the year-end weighed on volumes.
 

Germany's DAX 30 index trades modestly flat at 11,470 levels, the UK’s FTSE 100 index rises +0.28% to 7,087. Among the other indices, the French CAC 40 index trades -0.07% lower at 4,844, while the pan-European Euro Stoxx 50 index trades marginally lower near 3,275 points.
 

Commodities Recap
 

Oil prices rose for a fourth consecutive session on Wednesday to hold near annual peaks as markets await OPEC cuts. International Brent crude futures were up 36 cents at $56.45 a barrel by 1000 GMT.  
 

Brent hit $57.89 on Dec. 12, its highest since July 2015. U.S. benchmark West Texas Intermediate (WTI) crude oil prices were up 27 cents at $54.17 per barrel, not far from the year's high of $54.51 reached on Dec. 12.
 

Treasuries Recap
 

U.S. Treasuries were little changed during a relatively quiet Wednesday session that saw little data of much significance. The yield on the benchmark 10-year Treasury note hovered around 2.56 percent mark and the yield on short-term 2-year note stood flat at 1.27 percent.
 

UK gilts gained after recent data showed that the country’s mortgage approvals fell for the first time since September, defying expectations for a further rise. The yield on the benchmark 10-year gilts fell nearly 3 basis points to 1.31 percent, the super-long 30-year bond yield dipped 2-1/2 basis points to 1.94 percent and the yield on short-term 2-year slid 1 basis point to 0.07 percent.
 

German bunds gained as investors covered short positions, booked after the Federal Reserve raised interest rates for the first time this year and signalled at a faster hike in borrowing costs next year. The yield on the benchmark 10-year bond fell 2 basis points to 0.18 percent, the long-term 30-year bond yield also dipped 2 basis points to 0.88 percent and the yield on short-term 2-year bond slid 1 basis point to -0.83 percent.
 

Japanese government bonds traded narrowly mixed following stronger-than-expected retail sales, contrasted by a decline in consumer inflation and household spending. Also, long-term bonds traded marginally down as the Bank of Japan balanced its daily money market operations. The benchmark 10-year bond yield fell nearly 1 basis point to 0.05 percent, the long-term 30-year bond yields bounced 2 basis points to 0.70 percent and the yield on short-term 2-year note slid nearly 1 basis point to -0.15 percent.
 

New Zealand government bonds closed flat in thin trading activity during a relatively quiet session that witnessed data of little significance. Also, trading activity to resume after New Year celebrations, probably from the second week of January, 2017 as global market receives no more important data till then. The yield on the benchmark 10-year bond closed 1 basis point higher at 3.46 percent, the yield on 7-year note ended up 2 basis points to 3.04 percent and the yield on short-term 2-year note rose 2-1/2 basis points at 2.32 percent.
 

Australian government bonds were drifting between small gains and losses in quiet Wednesday trading session. The yield on the benchmark 10-year Treasury note fell 2-basis points to 2.86 percent, the yield on 15-year note also dipped 2 basis points to 3.33 percent, while the yield on short-term 2-year bounced 1/2 basis point to 2.00 percent.