Market Overview
After a few days of dollar consolidation, Federal Reserve chair Janet Yellen stoked the fire in the belly of the dollar bulls once more yesterday. Yellen see that a rate hike would be appropriate “relatively soon”, whilst she also confirmed that she intends on serving her full term to 2018. Markets will now start to consider how many rate rises the Fed might now be able to fit in next year. Perhaps even the “dot plots” in the December FOMC will be believed now. This reassuring and arguably hawkish lean from Yellen has resulted in the US trade weighted Dollar Index surging through to a new 13 and a half year high as it burst clear of 100.5. The incredible recent run for the dollar priced against the euro and also the yen has taken on a new lease of life after beginning to look rather tired earlier in the week. The other angle is that Treasury yields have also taken on a next leg higher too. Rising yields and a rising dollar have generally helped to improve risk appetite and equity markets are also looking more positive once more.
Wall Street closed higher again with the S&P 500 +0.5% at 2187, whilst in Asia the Nikkei was also helped by renewed yen weakness to close +0.6% higher. European markets are positively biased this morning although not excessively. In forex, the dollar is king one again versus the major currencies, with only the Kiwi managing to hold up. The yen is the biggest underperformer again. Gold and silver has come under renewed selling pressure with the dollar strength and the oil price also lost gains yesterday after Yellen’s speech and is a percent lower today.
There have been a whole raft of Fed speakers giving their views this week and we finish off with three more today. James Bullard will be making more comments at 1030GMT but he has already well documented in his views this week. Bill Dudley is around again at 1430GMT so the market will probably be looking more at Esther George who was previously the outlier hawk calling for rate hikes and it will be interesting to hear just how hawkish she is now.
After a rather heavy week of economic data, traders have a fairly sedate end to the week on the economic calendar. Canadian CPI is at 1330GMT with +headline expected to increase to +1.5% (from +1.3%) but the core is expected to stick at +1.8%. Also of interest we will have a speech from ECB President Mario Draghi at 0830GMT and the Bundesbank President Jens Weidmann at 1030GMT.
Chart of the Day – DAX Xetra
The sharp rally on the DAX in the wake of the victory of President-elect Trump has again hit up against the resistance around 10,800 in the past few days and tailed off. It is interesting to see that the number of negative candles have been racking up in the past few days, whilst the momentum indicators are once more tailing off. The RSI is again failing around 60 which it has done on ever rally towards 10,800 in the past three months. Also the Stochastics are now beginning to turn lower for a sell signal. This does not bode well for the breakout above 10,800. The market has now formed an intriguing near term trading range between 10,575/10,800 as the consolidation of the past few days has developed. The hourly chart shows this range well, whilst the momentum indicators have also dropped away and a lower high has formed at 10,750. If the hourly RSI starts to drop consistently below 40 it would be a concern for the bulls, whilst a the MACD lines turning more negatively configured would also be a warning. A breach of 10,575 would imply a 220 tick top pattern (implied target 10,360) whilst the pivot band around 10,450 would be the likely first test. The reaction of the bulls today to the early gains will be interesting, however it would take a close above 10,827 (the October intraday high) to confirm an upside breakout. For now though the technicals point towards another corrective move first.
Read the full article written by Richard Perry, on our website.