A lot can happen in a day so keeping track of what the markets are most fearful of or most jubilant about is a hard task. Thankfully we have now kicked the can down the road on the US default and possible shutdown to at least mid-February 2022. Now we only need to worry about rising inflation, COVID-19 variants, jobs data, possible war, and whatever the next unknown disrupter is. For now, we should be looking for reasons to get long the greenback and short everything else forex. Just be aware of the data this afternoon.
The US dollar is once again a safe-haven currency like the US Senate votes to pass the stopgap funding bill to fund the Federal government through to February 18th, 2022. The final vote showed a large majority was in favor coming in at 69 v’s 28, so I am surprised that they couldn’t come up with something with more longevity. It just means the US dollar becomes vulnerable again in a few months’ time. The other political football is the Build Back Better bill which is likely to be blocked rather than get approved by Christmas.
With a last-minute resolution to the Federal funding, the US Treasuries could strengthen as there is less chance of a US government default on its liabilities. We just need to be aware of the Treasury auctions to see what sort of demand is present. TLT is still moving away from the consolidation pattern, so the next move could be an expansion to the upside.
Yesterday ended strong in the US markets and that was followed by the Nikkei 225 and Shanghai Stock Exchange which are both up by 1% at the London open. ECB President speaks again today and will hopefully say something to get the European bourses moving into the green as currently the DAX and CAC are down about -1.30%.
The strengthening US dollar is keeping the euro from making any more headway higher as the monetary policies from Europe and the USA diverge. With one looking to keep monetary policy loose and the other indicating they are to go quicker on their tightening. It is most likely that the EURUSD goes lower, so as we take out the previous day’s lows, we could be taking shorts. But with the risk events scheduled today, it would be wiser to wait until Monday.
There is one MPC Member from the Bank of England talking today which could move the GBP ahead of the Canadian and US data but any moves in the GBPUSD could be quickly reversed on a surprise NFP number. Currently, the cable is struggling to get above any resistance and is looking to test the recent lows of 1.3180 again as the greenback moves higher.
Although the jobs data is the focus of most traders today, I shall be waiting for the ISM Services PMI which comes out at 3 pm before choosing a directional trade should one present itself to me.
The Chinese Caixin Composite PMI for November along with the Caixin Services PMI both came in under expectations today. The readings were 51.2 and 52.1 respectively so still in expansion just not an accelerating expansion.
After OPEC+ agreed to raise output by 400kbpd in January I would have thought there may have been more worries of an oversupply due to the rising cases of Omicron around the world. The fact that the stock markets last night and Brent have risen suggests that the markets are not too concerned about the new variant with the data we have so far. The reversal candle on Brent off the trend line support and away from a demand zone suggest that there were a lot of buyers waiting to buy the dip. For things to get super bullish technically, we still need to close above $75.62 per barrel.