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.