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Great employment figures boost the Australian dollar

Despite the disruptions and protests across the central business districts in Australia, the employment data shows that things are improving down under. The rest of today’s data has so far added to the inflation story and worries around rising COVID infections. The London session has started with a risk-on feel so I am expecting some bullish moves to pause the equities declines, though this could all change after the US IJC data drops this afternoon.

Market Brief

Seasonally adjusted estimates for December 2021 from the Australian Bureau of Statistics were released in the overnight session.

In December 2021, unemployment plunged to just 4.2% in Australia, the largest drop since the global financial crisis. The unemployment rate fell with an estimated 64,800 jobs created, with a participation rate remaining at 66.1%. It followed a similar decline of 69,000 people and a 0.6 percent drop in unemployment in November. Monthly hours worked increased by 18 million hours and the underemployment rate decreased to 6.6%.

The Australian dollar reacted positively to the news, but it looks like 0.7250 is going to act as solid resistance and there is a high probability move to the downside coming, as the price action usually breaks in the opposite direction to the channel that is forming.

Private data from the American Petroleum Institute (API) yesterday showed that crude oil inventories increased by 1.40 million barrels in the week ending January 19, 2022. Gasoline stockpiles grew by 3.46 million barrels, while distillate inventories lost 1.18 million barrels. This is the first build in 8 weeks.

Brent dipped on the US data and has today traded below yesterday’s lows, suggesting for the first time in nearly 2 weeks that some profit taking could be taking place. The Brent price above $86 is still very bullish though.

In an announcement in the Asia-Pac session, the People's Bank of China (PBOC) revealed that it decided to further reduce its one-year loan prime rate to ease the impact of the COVID-19 pandemic on the country's economy. In December, the one-year rate was cut from 3.85% to 3.80%. It now stands at 3.7%, down by another 10 basis points. A central bank only cuts rates when there is a systematic problem with liquidity, which is most probably rooted in the COVID-19 disruptions and zero-tolerance policy being enacted ahead of the Winter Olympics.

Germany's national statistical office Destatis reported that producer prices increased 24.2% in December from a year earlier. The producer price index was up from 19.2% in November.

Natural gas prices skyrocketed 121.9% from December 2020, pushing energy prices up 69% year on year. In the same month last year, the producer price index rose 10.4% excluding energy.

The EURUSD paused at the bottom of the range yesterday and I am expecting the real move to come after the ECB meeting minutes drop later today. The morning is peppered with ECB members talking. In the US session the weekly US initial jobless claims data, existing home sales, and Philly Fed Manufacturing data drops plus the US EIA weekly crude stock report.

The US dollar index is in a great position for traders looking to short the greenback. The old support level has acted as resistance and a move below yesterday’s lows signal the selling pressure is still here. A weaker US dollar would help precious metals continue their breakouts, but it would also support the commodities and fuel inflation further.


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