MARKETS CAUTIOUS AHEAD OF CRUCIAL OPEC MEETING

 two key factors driving the cautious approach, being today’s OPEC meeting and the prospective dollar correction. Volatility in the oil market will be high as the bi-annual meeting of the Organisation of Petroleum Exporting Countries (OPEC) is held in Vienna. Suggestions are that the key players (Saudi Arabia, Iran and Iraq) are engaged in a game of poker, and the prospect of agreement seems to be increasingly in the balance. Broadly speaking, Saudi Arabia wants every country to cut, whilst Iraq and especially Iran are proving resistant as they look to ramp up production following years of sanctions. The last two years of market share grab will mean that the countries may struggle to come to an agreement. The other key market factor is that the recent bull run on the dollar has stalled and an increasingly mixed outlook is forming. The decline in Treasury yields have pegged back the bulls, but equally the Trade Weighted Dollar is finding support above 100.65 and is not yet ready to lose the hard fought gains. This is all driving consolidation across markets. The Bank of England also gave results of the UK banks stress tests at 07.00GMT showing that Royal Bank of Scotland has failed and needs a new capital plan, meaning that 8 years after the financial crisis, UK banks are still not out of the woods yet.

DOLLAR HOLDING UP AS THE NASCENT CORRECTION STALLS

As Treasury yields begin to drift lower it has seemed as though the dollar bulls had lost control, with the prospects of a corrective move growing. However, maybe there is still some life left in the dollar bull run as the nascent corrective move is being held up today. The trade weighted dollar index may have retreated from its recent peak of 102.05 but there is support at 100.65 that is still holding. Today’s moves show support again and there is little real significance yet to the dollar correction which may still yet prove to be short lived. Several key markets priced against the dollar have got significant overhead supply that could prevent a significant corrective move for the dollar. Watch for confirmed moves above $1.0710 on EUR/USD, above $1200 on gold and below 111.35 on USD/JPY as trigger signals for a continued correction. The oil price is though far more concerned with developments at the meetings involving OPEC members in Vienna. Whilst Iraq appearing to be co-operative is helpful, the Russians have yet to declare anything their position yet and this is a concern. Volatility is likely to be high in the coming days and headlines will drive trading.

US DOLLAR LOOKING CORRECTIVE AS TREASURY YIELDS FALL

After a number of corrective signals failed to put the skids on the dollar rally in the past week or so, the most significant signals so far are beginning to suggest that profit-taking on the dollar will be taken more seriously this time. The driver of the recovery had been the sharp rally on Treasury yields in recent weeks, but this move is threatening retrace, with the two year and ten year yields lower today. This move is showing through on the US trade weighted dollar index which after a couple of days of consolidation is beginning to pull lower today. A close below last week’s low at 100.65 would confirm the near term correction. Markets will also be focusing on the key OPEC meeting’s this week with the main meeting on Wednesday. However the fringe meeting of members and Non-OPEC members (ie. basically Russia) will take place today and there are suggestions that Saudi Arabia (one of the major voiced in OPEC) will not take part, which would reduce the impact of this meeting and will make traders even more nervous. The oil price will be very volatile in the coming days and this could impact on market sentiment. It will also be interesting to see how the US returns from the Thanksgiving holiday.

THE DOLLAR REMAINS STRONG FOR THANKSGIVING

As the US moved towards Thanksgiving the dollar has remained strong and gone on another tear higher into the holiday period in the US. Stronger than expected data on Durable Goods Orders and the flash Manufacturing PMI saw Treasury yields spike higher and the dollar followed suit. This has pulled the greenback through key levels against the euro and the yen, whilst the negatively correlated gold price has broken it key $1200 support. These huge breaks have taken the dollar to even more overstretched levels and whilst the move is strong, it will be interesting to see the reaction of traders to some dollar negative news now. The more overbought the dollar becomes, the more decisive the retracement could be once the elastic starts to snap back. The FOMC meeting minutes have done little to change any expectations of rate hikes, with the market already prepared for rates to rise “relatively soon”. For today though, with it being Thanksgiving public holiday in the US there is likely to be reduced trading volumes however this could mean uncertain trading moves and potentially increased volatility in thin markets. For the UK, reaction to finance minister Phillip Hammond’s first financial update has been relatively supportive on sterling. With Gilt yields ticking slightly higher, the pound has held its ground against a storming dollar.

FOREX MARKETS IN CONSOLIDATION AS THE DOLLAR BULL RUN STALLS

 With the rise in the US 10 year Treasury yield taking a breather, the US dollar rally has run out of steam, at least temporarily. This is driving a consolidation across forex majors, but with the dollar having rallied 10% against the likes of the yen in the past couple of weeks there is still the prospect of a corrective move. Despite this though, US equities continue to pull higher, with the Dow hitting 19,000 for the first time ever and the S&P 500 over 2200 for the first time ever. This is dragging the European markets higher too but they are yet to breach key resistance levels and it will be interesting to see if the DAX can manage to break through the 10,800 level which has been so difficult in recent months. The FOMC meeting minutes tonight will be interesting for signs of just how hawkish the committee was leaning before Trump’s reflation rhetoric came to impact expectations. The impact of the minutes may be a little subdued as things have moved on so significantly since the FOMC meeting at the beginning of November. In the UK, Chancellor Phillip Hammond (finance minister) holds his first key economic speech in the UK Autumn Statement where he is expected to announce more of a fiscal expansion than his predecessor George Osborne.

OIL PRICE JUMP BOOSTS EQUITIES WITH DOLLAR UNCERTAIN

A boost higher in the oil price has helped to give market sentiment another shot in the arm and has propelled Wall Street into new high ground. With the bi-annual OPEC meeting next week, the newsflow over the implementation on production cuts/freezes will ramp up. Yesterday’s optimism over the production cut helped to pull oil sharply higher yesterday and the move has continued today. The move helped to pull the S&P 500 into all-time high ground yesterday, with the VIX Index back below 13 and its lowest since 7th October. It will be interesting now to see if this can filter through to other markets such as the DAX which has struggled for months around its key 10,800 resistance area.  With Treasury yields consolidating, there have been signs in the last day or so that the dollar run higher is struggling to maintain its impetus and there are key markets such as EUR/USD and USD/JPY that are looking susceptible to a retracement. The dollar has reacted positively today but the next move is uncertain, which could encourage profit-taking.

OIL HIGHER WITH MILD DOLLAR WEAKNESS TO SUPPORT MARKET SENTIMENT

As the new trading week begins, market sentiment has started relatively settled but in a more positive mind-frame today with oil trading higher. The rally on the dollar has just stalled a touch in the early moves, with Treasury yields flat to slightly lower on the 2 year and 10 year maturities. However it seems to be a more positive start to trading for the oil price which is helping sentiment, after suggestions that there is a movement towards implementing the OPEC production cuts. Furthermore, Russian President Putin also suggested that there are few hurdles to reaching an agreement on production levels. This has helped to pull the price back higher again. The positive sentiment is seen across forex majors with the yen remaining weak, whilst the Canadian loonie is outperforming the US dollar, another signal of a positive impact of oil.

The euro is on its longest losing streak ever

The euro on Friday was headed for a 10th straight loss against the U.S. dollar, and investors are taking notice as the shared currency extends its longest losing streak since its inception.

The path for the euro doesn’t look much rosier in the short term, with an Italian referendum and the prospect for further monetary stimulus from the European Central Bank among its potential hurdles.
The euro EURUSD, -0.3388% on Thursday marked its ninth straight decline against the greenback, the longest string of losses since the euro started trading December 1999. It hit an intraday low of $1.0582 on Friday, and that followed Thursday’s dip below $1.06.
On a technical basis, the market is looking pretty stretched now. However, the momentum is very strong against the euro at the moment. As exactly how long it will continue, that remains to be seen,” said Richard Perry, market analyst at Hantec Markets.

He said the next level to watch is $1.0538 as that is the December 2015 low. The $1.0456 level is the March 2015 low and that “is a massive, massive support [area]. If that goes, then you’re looking at parity.”

MARKETS LOOKING MORE CAUTIOUS AS DOLLAR CONSOLIDATES

An air of caution is beginning to come over markets as the huge run higher on the dollar consolidates with it beginning to run out of steam. For the past couple of days now the excessive moves higher on Treasury yields have begun to settle down and although the dollar briefly pushed above the key resistance of 100.5 on the Trade Weighted Dollar Index yesterday (to reach its highest level since 2003) there is a feeling that some of the steam is beginning to go out of the dollar bull run. Whether this turns out to be the beginning of a near term corrective move, or just a pause for breath remains to be seen but there are a few signs of exhaustion on technical charts such as the Dollar/Yen and Euro/Dollar, whilst gold has been consolidating for the past few days. Equity markets are also showing signs of caution again.

DOLLAR RALLY IS STALLING AS TREASURY YIELDS CONSOLIDATE

The dollar rally seems to be slowing in the past couple of days as the huge move higher in Treasury yields has just started to consolidate. This means that there could be a short period of respite at least, for the selling pressure on major forex currencies and gold. The Trade Weighted Dollar Index closed above 100 for the first time since December last year yesterday but the market is beginning to consolidate. This comes as the 2 year Treasury yield is settling down around 1.0% and the 10 year yield is settling around 2.2%. This settling is allowing support to form on the likes of gold (above $1211) and the euro (above the key support around $1.0710). It is possible that the profit-takers may look to move in if this consolidation continue. However, until there is more meat to the bones of what Trump’s proposals are, it is likely that the market will back this reflation trade that is supportive for the dollar. This comes as FOMC members continue to roll out with more hawkish language in the wake of the prospect of fiscal stimulus from President-elect Trump. Eric Rosengren suggests this would generate a tighter monetary policy with Daniel Tarullo said yesterday that a hike was more likely now.

THE DOLLAR REMAINS STRONG AS TREASURY YIELDS JUMP AGAIN

The move higher on the dollar has continued today as the markets continue to price for higher US growth and inflation of a Trump presidency. The strong dollar has been exacerbated by the early jump in Treasury yields (the bond market was shut Friday for Veteran’s Day), with the 10 year yield now over 2.2% and the highest since January. Also the highest since January is the Trade Weighted US dollar which is again close to 100. These moves are impacting across major forex pairs with EUR/USD back to Q1 levels and Dollar/Yen moving above a the key technical resistance at 107.47. The stronger dollar is also pulling gold back below the key October support and the bears will now be eyeing the $1200 level once more. Economic data out of Asia has been mixed this morning, with Japanese GDP better than expected at an annualised +2.2%, but China Industrial Production (+6.1%) and Retail Sales (+10.0%) both missed expectations.

MARKETS LOOKING MORE CAUTIOUS AS VOLATILITY BEGINS TO SUBSIDE

A slight air of caution is beginning to take hold now, with markets still trying to figure out the impact of a Trump presidency, and there are signs that volatility is beginning to subside now. After the initial wobbles, Wall Street had given Trump the thumbs up and pushed strongly higher. The prospect of tax cuts and potentially $1 trillion of fiscal stimulus would do that, whilst the changes to banking regulation is also deemed to be strong for the banks sector. The dollar has been on a tear since the middle of Wednesday morning, however there are a few early signs of this rally beginning to slow. The rally on Treasury yields though continues apace yesterday and if this begins to drop off then there could be some cause for some near term profit taking on these long dollar positions. The safe havens have been hit in the past couple of days but can the early moves today be anything more than a bear rally that delays further selling pressure?

VOLATILITY YET TO SETTLE WITH DOLLAR STRENGTH EBBING SLIGHTLY

The remarkable victory for Donald Trump in the US Presidential election resulted in an incredibly wild ride on financial markets that saw sharp swings first one way then the other. Initial pressure on risk appetite and the dollar turned around into the close, with an incredible rally in sentiment. The driver seems to have been the bond markets which took Trump’s acceptance speech as being a driver of both growth and inflation. This pulled a huge swing higher on the US 10 year Treasury yield and a significant steepening of the yield curve. Just 24 hours after Trump was announced as the President-elect, volatility is still yet to settle down. Will this initial assessment of reaction continue? Today there still seems to be an appetite for safe haven plays as the yen and gold have recovered some of the losses into the close. Furthermore, some of the dollar strength is just ebbing away again this morning and it will be interesting to see where the greenback ends up as the volatility subsides.

WHAT ARE THE MARKET LEVELS TO WATCH FOR THE PRESIDENTIAL ELECTION

As the US goes to the polls markets are consolidating. However this will certainly be the calm before the storm and overnight tonight we could get some significant swings with big volatility across forex and commodities. As the swing states are revealed early on Wednesday morning (UK time) we should get an indication of the victor. However that means volatility is likely to be significant early on, especially if Trump has a few strong early results. Ultimately with Hillary Clinton around 4% ahead in the polls and likely to win, a Clinton victory would be the least volatile outcome for markets. 

DOLLAR LOOKS TO STABILISE AHEAD OF NON-FARM PAYROLLS

After several days of dollar correction, the bulls are starting to build support again which is starting to unwind some of the recent safe haven flows ahead of Non-Farm Payrolls. The need to re-price for a Trump victory has sent market fear soaring in recent days with the VIX volatility closing yesterday at its highest level (at 22) since Brexit. However, whilst equity markets are feeling the concern, it is interesting to see Treasury yields begin to pick up slightly again and the US Trade Weighted Dollar also moving higher. This is helping the dollar to perform better across the forex majors and begin to unwind some of the safe haven flows away from the yen and gold. Today is Non-farm Payrolls and with the Fed still firmly on course for a rate hike in December it would need a drastically disappointing set of labor market data to alter market expectations. With expectation of another middle of the road report and the market more mindful of the impending election, it is possible that this could be one of the lower volatility Non-farm Payrolls Fridays we have seen for a while.

FEARFUL OF A TRUMP VICTORY THE DOLLAR REMAINS UNDER PRESSURE

Markets remain fearful of a Donald Trump victory and the dollar is under pressure. Safe haven assets such as US Treasuries, the Japanese yen and gold are rallying, whilst higher risk plays such as equities are being sold. Moreover though, the dollar is corrective and this is impacting across the forex majors, with even the embattled sterling managing to rally against the greenback. In the past week, the Trade Weighted Dollar Index has dropped from 99.0 to 97.1, which is almost 2.0%. Even the Fed has done little to support the dollar, in spite of there being little change to the expectations of a rate hike. The Federal Reserve quite predictably chose to hold off from increasing the Fed Funds rate, given the proximity to the Presidential election. The FOMC believes the “case for an increase in the federal funds rate has continued to strengthen” but has chosen to “wait for some further evidence of continued progress”. Whilst there was no explicit point towards a December hike, there is little to suggest it will not happen. According to the CME Group FedWatch tool, the probability of a December hike remains above 70%. For now the dollar is running on politics and not economics or fundamentals. Non-farm Payrolls may create some volatility tomorrow but it is Trump’s polling that seems to be key right now.