US dollar range extension and Gold at 6-month highs
We don’t usually get the US dollar at new weekly highs and with-it gold at new weekly highs. So, something is out of whack and one of them will return lower in the coming days and possibly weeks. Currently gold is looking the most likely to reprice lower, but it should be the US dollar, as the Fed has said that they will not raise rates.
Market Wrap
The US dollar is rising as the trading community buys into the recent inflation and jobs data. The market is current aggressively buying the greenback as a signal they are expecting the Fed to have to raise rates to address the increasing inflation. The US 10-year futures dropped from 131’250 to 130’295 at the time of writing. TLT which will be the next to be affected by the US 30-year Treasury auction later today, dropped from its highs and benchmark yields rose.
According to the latest release from the US Department of Labor, the advance figure for seasonally adjusted Initial Jobless Claims (IJC) was 267,000 for the week ending November 6. Compared to the previous week's revised level, this represents a decrease of 4,000. Initial claims also reached their lowest level since March 14, 2020, when they stood at 256,000.
Non-farm payrolls reached 531k in October, so the Fed's current policy may be helping them fulfill part of their mandate. If the NFP figure can stay between 500K and 600K each month and the IJC can keep moving towards 200K or less, we could have maximum employment in the coming year.
In comparison with the previous week's revised average, the 4-week moving average was 278,000, a decrease of 7,250. The average hasn't been this low since March 14, 2020, when it was 225,500. I think 200K is the sweet spot for the 4-week average.
Inflation in the US has come in at 0.9% month-on-month, well above the consensus. As a result of supply chain issues, labor shortages, and rising energy prices, the annual inflation rate in the US surged to 6.2% in October, making it the highest reading in 31 years and above forecasts of 5.8%. Core inflation, which excludes the more volatile Energy and Food measures, accelerated to 4.6%, the highest since August 1991.
In the last week, US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.0 million barrels. US crude oil inventories are approximately 7% below the five-year average for this time of year, at 435.1 million barrels.
Expectations today were for crude stocks to be around 2 million barrels down from 3.3 million the previous week. As the economy opens and flights start going trans-Atlantic, compared to the same four-week period last year, jet fuel product supplied increased 45.2%.
The Brent contract dipped back to $83 per barrel on the news which happens to be a re-test of the bull flag breakout too but carried on back into the descending channel. The price action is still bullish whilst the oil markets trade above the November lows.
The rising US dollar will weigh on the energy markets and President Biden will have to address the energy prices soon. France has suggested giving their citizens €100 to help pay for the energy costs seen across Europe, so maybe the US will do something similar. It could also release stocks from the Strategic Petroleum Reserve, so we should keep an eye on that.
Gold is at a 6 month high and finally cleared the liquidity that had been sat above the $1833 level and accelerated higher as expected. It found resistance at market structure swing lows from June 2021 and with the rising dollar I would expect the high to be in and profit-taking to continue. If the manipulators are to have stepped in, today would have been the day they sold as everyone else was buying, with their buying back opportunity back down at $1675. Hopefully, I am wrong on that.
The USDJPY continues to go with the US 10-year yields and today is back trading at the highs of the bull flag, so we are still waiting for that chart pattern to play out.