The US dollar index consolidates around the $96 price level
The markets are trading in relatively tight ranges with a risk-off sentiment curtailing any long-standing trends in the equities markets from continuing. Trade deals, geopolitics and Coronavirus are all getting mixed into inflation worries and monetary policy decisions.
In response to the US confirmation that free trade talks with the United Kingdom have been suspended, the UK FTSE100 stock exchange closed in negative territory today. Overall activity on the stock exchanges has been lower as the markets weigh up not only the decision by the US but also the virus concerns along with the now confirmed default by the Chinese house builder Evergrande.
The chart above shows how the FTSE100 has been travelling higher within a rising channel and the rejection of these highs could now mean the top is in for the index. If this is the case the measured move lower beyond the most significant swing low takes the price down towards 6700.
Prices of precious metals declined following the initial jobless claims data, with gold dropping -0.5% as investors now await inflation data from the United States set to be released tomorrow. This CPI print could be the spark that confirms the FOMC will taper faster, meaning yields higher. The price of gold is on the precipice and if we take out some previous daily lows and close beyond the rising trend line, we may see more traders pile in on the short side.
The number of initial jobless claims in the United States for the week ending December 4 fell by 43,000 from the previous week's revised figure to 184,000 before the start of the US session. It was the lowest figure since September 6, 1969. The previous week's count of initial jobless claims was revised up by 5,000 from 222,000 to 227,000. Meanwhile, the 4-week moving average decreased by 21,250 from the past week's revised average to 218,750.
The yield on the benchmark US 10-year Treasury note edged down to 1.47% today having touched an over 2-week high of 1.53% the day before as investors continue to assess risks. The US Treasury sold $36 billion in 10-year notes yesterday at a high auction yield of 1.518% and will auction their 30-year bond later this afternoon. The higher yields have been preventing gold from rising, so if they were to fall from these levels following tomorrows CPI print, maybe that is what saves the gold bugs from more pain.
The forex heatmap is signalling for an overall risk-off tone in the top 10 currencies though the lack of any bids for the Swiss franc doesn’t make this a fully risk-off day. The drop in oil contracts may have some responsibility for the strength of the yen.
The EURUSD is the largest constituent of the US dollar index and with retail trader sentiment for the euro versus the greenback bullish by 77%, I would expect to see the EURUSD drop and the DXY to rise.
The US dollar index (DXY) is currently consolidating in a wedge pattern around the $96 price level, so if we get a break in either direction the next trade could be after the retest of that breakout level in preparation for the continuation move.