The final hours of trading in 2021 are upon us and for the most part, all assets are trading within known ranges, but that shouldn’t take away from the new all-time highs printed today which to me shows the strength in these markets even though we are seeing record cases of COVID-19 infections.
According to the US Department of Labor, the number of initial claims for unemployment benefits decreased by 8,000 compared to the previous week. Compared to the prior week's revised average, the four-week moving average fell by 7,250 to 199,250, its lowest level since October 25, 1969. The Dow Jones Industrial Average is back under 36500 having printed a new all-time high again.
The markets are now trading in some of their smallest ranges as we approach the final hours in 2021. The Nikkei225 ended the day just under the 29000 level which is only a small percentage distance from the all-time highs. The UK FTSE100 ended the day near its opening price but up 0.77% for the week.
The VIX as seen in the chart above has dropped 78.6% from the recent significant high that formed due to worries around the Omicron variant of COVID-19. Fear has all but left the markets even though there has been a surge in children contracting the disease and record numbers of Omicron cases around the world.
The Brent crude contract has been unable to tag the $80 per barrel level but came very close to it. The energy markets are double-digit percentages higher this last month bar Natural Gas which is -32% lower over the last week.
The forex heatmap shows that the commodity pairs have retained their relative strength today against the yen and Swiss franc pairs but also that the euro has slipped into being the weakest on the day. The EURUSD is red for the day but it is still trading within yesterday’s price action and back under the 1.1320 again.
Klaas Knot, a member of the Governing Council, predicts that the European Central Bank will raise interest rates early in 2023 after ending the remaining bond purchases by the end of next year. Knot said: "We're on track to end the remaining bond-buying by the end of next year, and when that happens, we can raise rates in 2023." When asked if his colleagues in Frankfurt have a similar time frame in mind, Knot responded, "I think so." But a lot will depend on how the economy develops next year. A year is a long time." Earlier this month, the ECB said it would wind down its pandemic bond-buying program but temporarily expand an older quantitative easing program to cushion the transition.
The weaker euro today has been good for the pound as the EURGBP drops most of the pound crosses. The EURGBP is likely to drop for a 4th consecutive month which is even more significant as the December high took out the previous month’s high.
One reason for a lower EURGBP would be to squeeze the retail traders on the ActivTrader platform out of their long positions. The EURGBP squeeze is getting very crowded with 87% of traders looking to stay long as the price drops.