Currencies
EUR/USD – has reached the lowest levels since December 3rd 2015 when the ECB failed to deliver a much anticipated increase in stimulus. It was able to find some support there, but it looks like it is only a question of time before we move further down. If we drop below the next support at the 1.046 level we will be trading at the lowest level in 13 years! We will look at that the German data will be this morning, the most important of which is the GDP data.
USD/JPY – the strong data out of the US was the push needed to say goodbye to the resistance level and move further up. The nearest resistance can be found around the 114 level, but with the current pace we will be there quite quickly. It is quite remarkable to see the speed at which we have climbed, and this can also be seen at the RSI for example which is quite high, and at the highest level since 2015.
GBP/USD – the much anticipated UK Autumn Statement caused less volatility than expected. The UK did lower its growth forecast due to the Brexit vote but is also signaling that it is optimistic and the economy has been resilient so far. Obviously the real impact of the Brexit vote will be known only after a few years once Brexit has become a fact. Nevertheless, the GBP was the only currency to gain versus the USD yesterday.
USD/CAD – is rising even though oil has been moving up recently, something that usually strengthens the CAD. However, we had some weaker Canadian data earlier in the weak and also the USD is showing unrelenting strength. The nearest resistance can be found close though, around the 1.3536 level.
USD/TRY –marked a new record high and is likely to see some volatility today. The Turkish Central Bank will decide on the interest rate, and while the Central Bank would like to increase the rate in order to stem the weakening of the TRY, Turkish President Erdogan has said he doesn’t want that to happen. With the recent failed coup and the purges in the country afterwards, it remains to be seen in the Central Bank will go against him, but even if they increase the rate, it might be too little and unable to change the direction.
Indices
Dollar Index – once again jumped higher on the backdrop of some very strong US data. This strong rally is probably giving the FED some headaches, as they probably don’t want the USD to strengthen too much too fast and with a rate hike as well in a few weeks, the question is where this will stop. On the other hand, not raising the interest rate would cause a lot of other problems, the credibility of the FED for one. But also from the FOMC meeting minutes released yesterday it is pretty clear they will raise the interest rate. If not, all hell will break loose as the market is fully convinced that they will raise the interest rate.
S&P 500 – remains trading near record highs, but has a hard time to really cross over the 2200 level. This is not that surprising as we have seen a very rapid climb and a correction is only natural, but we have barely seen one so far.
XLF – I don’t mention these often, but ETF’s are an excellent instrument to trade as well. For instance the XLF is the financial service index which includes banks, and insurance companies for example. As Trump is expected to relax regulation, these have risen quite a lot. Instead of buying a certain stock, you can buy the ETF and benefit that way.
XLB – another good example would be XLB, which is the index for the material sector, which includes chemicals and construction materials. As Trump is looking to invest heavily in infrastructure, this could be an interesting ETF to look into as well.
Commodities
Gold – only yesterday morning I mentioned that we would need to see a new USD surge in order to see gold drop below the 1200 level, and that is exactly what we saw. The US data showed a large beat on the expectation and that caused the USD to strengthen quite a lot and as a result we saw a sharp drop in gold, which accelerated after breaking below the 1200 level, triggering a lot of stops. At the moment we are able to find support around the levels mentioned on Tuesday.
Oil – is clearly looking for a direction as it is waiting for more information the chances of an agreement to cut production. In addition we will wait to see, in case they agree, for how long they will cut production and more importantly by how much. As mentioned yesterday, Russia is only willing to freeze production, not to cut it. The interesting point is that production has increased since the Algiers agreement, not only by Russia, but also by OPEC. Iraq in the meantime has signaled that it is apparently willing to join a cut, but did not specify how much they are willing to cut. Inventories in the US showed a small decrease, while production slightly increased. We also saw that the number of active rigs continued to increase (released on Wednesday instead of Friday due to Thanksgiving).