World Bank’s Grim Global Growth Outlook Lifts Dollar Index

Risk-Off; AUD Slumps, USD/JPY Soars; Stocks Slip, Yields Flat

Summary:

According to the World Bank, an international organization with 189 countries as members, the global economy is on course to record its worst half decade of growth in 30 years.

In its “Global Economics Prospects” report, the bank said that the war in Eastern Europe, Russian’s invasion of Ukraine and China’s slower expansion could have impacts on economic growth.

Risk-off sentiment which followed the report, lifted the Dollar Index (DXY), a popular gauge which measures the Greenback against a basket of 6 major currencies, to 102.55 from 102.10.

The Australian Dollar (AUD/USD), often the FX barometer of global growth, slumped to 0.6680 (0.6727). New Zealand’s Kiwi (NZD/USD) slid to 0.6230 from 0.6260 previously.

Sterling (GBP/USD) lost 0.37% to 1.2695 (1.2759) while the Euro (EUR/USD) dipped to 1.0921 from 1.0961. The UK BRC Retail Sales Monitor slumped to 1.9% from 2.6%, missing forecasts at 2.3%.

Against the Japanese Yen, the US Dollar soared to 144.53 (143.65). Japan’s devastating New Year’s Day earthquake reduced expectations of a Bank of Japan pivot from its ultra-dovish stance.

The Greenback advanced against the Asian and Emerging Market Currencies. USD/CNH (Dollar-Offshore Chinese Yuan) rallied to 7.1875 from 7.1650. The USD/SGD pair (US Dollar-Singapore Dollar) climbed to 1.3315 (1.3275). USD/THB (Dollar-Thai Baht) rose to 34.99 from 34.85 previously.

Global bond yields were steady. The US 10-year treasury yield settled at 4.01% (4.02%). Germany’s Ten-Year Bund rate climbed to 2.18% (2.13%). Australia’s 10-year bond yield dipped to 4.10% (4.11%).

Wall Street stocks slipped. The DOW finished 0.4% lower to 37,515 (37,665). The S&P 500 finished at 4,757 from 4,765 previously. Germany’s DAX Index fell to 16,687 (16,772).

Other economic data released saw Australia’s Preliminary November Retail Sales climb to 2% from -0.4% previously, beating expectations at 1.2%, Japan’s Annual Household Spending slid to -2.9% from -2.5%, missing estimates at -2.2%.

Germany’s November Industrial Production slid to -0.7% from -0.3% in October, and lower than expectations at 0.2%. The Eurozone’s November Jobless Rate dipped to 6.4% from 6.5% previously.

• AUD/USD – The Aussie Dollar plummeted lower as risk appetite soured, finishing at 0.6680 from 0.6727 previously. In another volatile session, the Aussie Battler traded to an overnight high at 0.6734 before easing. The Aussie traded to an overnight low at 0.6677.
• EUR/USD – The Euro slid against the Greenback to 1.0921 at the New York close, down from its opening at 1.0962. The shared currency traded to an overnight high at 1.0966 before tumbling lower. The overnight low recorded was 1.0910.
• USD/JPY – Against the Japanese Yen, the US Dollar soared to 144.53 from 143.65. Despite the risk-off stance, the Yen remained weak as market participants saw reduced expectations of a BOJ pivot from its ultra-dovish stance due to the recent devastating earthquake.
• GBP/USD – Sterling slid on broad based USD strength to 1.2695 from 1.2759. The British currency soared to an overnight high at 1.2765 before tumbling lower. In volatile trade, the overnight low recorded was 1.2690. A weaker than expected read on the UK BRC Retail Sales Monitor report weighed on the British Pound.

On the Lookout:

Today’s economic calendar is light although crucial data will ramp up tomorrow and Friday. Japan kicks off today’s data with its Japanese November Average Cash Earnings (y/y f/c 1.5% from 1.5% - ACY Finlogix).

Australia follows with its Annual CPI report (y/y f/c 4.4% from 4.9% - ACY Finlogix). China follows with its December New Yuan Loans (f/c CNY 1225 billion from CNY 1090 billion – ACY Finlogix).

France follows, kicking off Europe with its November Industrial Production (m/m f/c 0.0% from -0.3% - ACY Finlogix). Next, Italy releases its November Retail Sales (m/m f/c 0.1% from 0.4%; y/y f/c 0.7% from 0.3% - ACY Finlogix).

The US rounds up today’s data releases with its November Final Wholesale Inventories (m/m f/c -0.2% from -0.4% - ACY Finlogix). Bank of England Governor Andrew Bailey will testify on the Financial Stability Report before the Treasury Select Committee in London.

Finally, New York Federal Reserve President and FOMC member John Williams is scheduled to speak about the 2024 economic outlook in an event in New York.

Trading Perspective:

Expect an extension of the risk-off sentiment in Asia today as markets await fresh economic data with the key US CPI release due tomorrow. Meantime rhetoric from central bank officials will be closely scrutinized.

Markets will continue to digest the bleak World Bank report on global growth in 2024. Which will generate support for the Greenback and keep Rivals under pressure, particularly the Asian and Emerging Market currencies. Volatility will stay elevated.

• AUD/USD – The risk leading Australian Dollar will stay soft against the Greenback and other Rivals. Look for the Aussie Battler to find immediate support today at 0.6670 and 0.6640. On the topside, immediate resistance is found at 0.6710, followed by 0.6740 and 0.6790. Look for more choppy trade in the AUD/USD pair today, likely between 0.6640-0.6740. Preference is to buy Aussie on dips today, both against the US Dollar and crosses.

(Source: Finlogix.com)

• EUR/USD – The shared currency reversed its uptrend, sliding to 1.0921 in late New York from 1.0961 yesterday. The Euro has immediate support at 1.0900 (overnight low traded was 1.0910). The next support lies at 1.0870. Immediate resistance can be found at 1.0970 (overnight high traded was 1.0966). The next resistance level lies at 1.1000. Look for more choppy trade in the Euro today, likely between 1.0900-1.1000. Trade the range.
• USD/JPY – The Greenback soared against the Japanese Yen to finish at 144.53 against yesterday’s open at 143.65. Immediate resistance today can be found at 144.70 (overnight high traded was 144.63). The next resistance level lies at 145.00. On the downside, look for immediate support at 144.20, 143.90 and 143.60. Look for another choppy trading day in this currency pair, likely between 143.30-144.80. Trade the range, nice and wide.
• GBP/USD – Sterling was pounded lower against the overall stronger Greenback and the market’s risk-off stance, to 1.2695 from 1.2759 yesterday. Look for Sterling to find immediate support at 1.2690 (overnight low) followed by 1.2660. On the topside, look for immediate resistance at 1.2730, 1.2760 (overnight high traded was 1.2765) and 1.2790. Expect more choppy trade in Sterling today, likely between 1.2670 and 1.2770. Trade the range.

Have a top trading day ahead. Happy Wednesday all.

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