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  • Writer's picturen ev

DXY is at resistance, and equities making new all-time highs. Maybe Santa’s rally started early?

So many central bankers talking about stuff that has been gone over with a fine-tooth comb already. But the markets must wait and see if there is new evidence to suggest rate hikes soon. We’re also getting close to the end of the trading week and that means traders will be looking to square up positions ahead of the US holiday week next week. The silver lining is that we could have some more fiscal flows coming into the market and know who is going to be Fed chair before this week is over.

Market Wrap

The GBPUSD daily chart has found resistance at the big figure but with a declining US dollar from $96 the pound could get some support and still make it back to the 1.3600 level which acted as previous support and resistance many times this year.

The forex heatmap at the time of writing is showing that the expected RBNZ rate hike is doing all the heavy lifting for the NZD and today's comments from ECB members combined with a weakening US dollar have been supportive for the euro. Overall though the forex space is a big mix, with no clear risk-on/off the direction.

The Brent crude contract is attempting to close back inside the range that it fell out of yesterday. $80 is a historical level and could prove to be quite sticky. I wouldn’t recommend trying to find a trade around this level unless there is a break of the lows tomorrow.

The US Labor Department reported that the initial jobless claims in the United States declined by 1,000 in the week ending November 12 compared with the previous week's upwardly revised level of 269,000. The 4-week moving average declined by 5,750 from the previous week's revised average to 272,750. According to today's data, just over 2 million people were unemployed last week marking a reduction of 129,000. The above charts will be welcomed by the Fed which is mandated to provide an economic backdrop that facilitates maximum employment.

The other schedule data today came from the US Philly Fed Business Index, which rose unexpectedly to 39.0 from the previous reading of 23.8, with new orders in November reaching 47.5 from 30.8 previously. Employment was down from 30.7 in October to 27.2 this month.

According to Philip Lane, a Member of the European Central Bank's Executive Board, the ECB does not expect inflation in the Eurozone to exceed 2%. "Core inflation is not a reliable guide to underlying inflation," as he expressed confidence that supply chain bottlenecks will soon ease. Lane also stated that communicating policy is difficult in a time of uncertainty but offered reassurances about the Euro Area's economic outlook.

The euro has found the lower trend line of this descending channel and the US dollar is finding it hard to keep pushing higher, so we could be getting a confluence of factors coming in which sees the EURUSD go back up to test the moving averages and the market structure.

The FOMC speakers are still scheduled to speak but the talk is all about the broader-based increases in inflation. That supply chain disruptions are a major cause of inflation and that the Fed's framework is well suited. According to Williams, the economy is roaring back, so I guess the economy may not worry too much about the rate hikes when they finally arrive.

We will have to wait and see. The US dollar is at resistance and is forming a bearish chart pattern, but after the breakout from $94.50 traders will be taking profits ahead of next week’s US holiday season.

House Speaker Nancy Pelosi, let it be known that the Build Back Better Act's final passage by the lower chamber of Congress may happen later today. Pelosi went on to say that a Senate panel should finalize a procedural move and that the CBO's estimate of the bill should be ready by 5 pm ET. If the Congressional Budget Office provides an estimate of how much money will be raised from the bill, it will be passed or not, based on whether it can pay for itself through IRS enforcement plans.

All 50 Democratic senators are needed to vote for the bill for it to pass. Assuming this does finally pass, whether it is today or not, the extra cash spent by the administration will start to find its way into the stock markets. The Nasdaq has gone to new all-time highs and is now in a trading range that could cut a path to 17,000.

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