Market Drivers – US Session 05/12/2022

Explosions struck two military airbases deep inside Russia on Monday as a result of drone attacks launched by Ukraine, according to Russian and Ukrainian officials, in what appeared to be an audacious attempt to hit the long-range bombers Russia has used to devastate Ukraine’s power grid.

Russia’s defense ministry on Monday confirmed the attacks on the bases that are located hundreds of miles from the frontline, saying two of its aircraft were damaged and three military personnel killed.

The US dollar finished Monday with extensive gains after a relatively shy starting of the US session. The dollar initially retreated on news from China, as different districts are easing their restrictive COVID-19 measures, while markets expect further easing next January.

The dollar surged also versus safe-haven currencies, with USD/JPY recovering towards the 136.70 price zone.

Economic Data

Markets became optimistic following the positive US data and the dollar advanced ahead of Wall Street’s close. The official ISM Services PMI for November improved by more than anticipated, surging to 56.5 from 54.4 and beating the 53.1 expected.

Factory Orders rose by 1% MoM in October, better than the 0.7% advance expected, while S&P Global upwardly revised its November Services PMI to 46.2 from a preliminary estimate of 46.1.

Other Developments

ECB’s Gabriel Makhlouf said that a 50 bps rate hike is the minimum necessary, adding that he would not rule out a 75 bps hike. The ECB and the US Fed will announce their decisions on December 15 and 14, respectively, and policymakers will enter their blackout period next Thursday.

EUR/USD trades around 1.0480, while GBP/USD fell to the 1.2160 price zone. Commodity-linked currencies were also under strong selling pressure, with AUD/USD now struggling around 0.6670 and USD/CAD nearing 1.3600.

Crude oil prices surged at the beginning of the day amid Chinese news, which means steady demand, and as OPEC+ announced its decision to maintain its decision of reducing oil production by 2 million barrels per day. Another factor weighing on oil prices was the latest EU decision to put a cap on oil prices.

Moscow said it will not recognize the price cap and is preparing a decision. The black gold turned south early in the US afternoon and posted sharp losses amid the broad USD strength. WTI settled at $77.20 a barrel.

Gold surged to $1,810 a troy ounce at the beginning of the day but plunged amid renewed USD demand and ends the day around $1,766 troy ounce.

Also Read