US equity indices trade near record highs as dollar slump continues

Dec 4 • Morning Roll Call • 2277 Views • Comments Off on US equity indices trade near record highs as dollar slump continues

The US equity index the SPX 500 reached a record high of 3,678 before giving back some gains during Thursday’s trading sessions. The prediction of more Fed monetary stimulus, combined with optimism improving over the imminent Democratic administration under Biden, has encouraged risk-on sentiment to gain traction.

Weekly jobless numbers beating expectations; by coming in at 712K for the week also added to the feel-good mood, in contrast to the USA posting record daily covid death numbers approaching 3,000.

The equity indices gains are the US dollar’s loss; as the Fed creates versions of quantitative easing, the dollar will fall in value. Evidence of the dollar’s collapse comes by way of the dollar index, DXY, which is down -5.88% year to date, and down -0.49% on the day.

The USD continued its collapse versus the Swiss franc to print a fresh low not seen since January 2015. At 20:00 hrs on Thursday USD/CHF traded beneath the first level of support S1 at 0.8913, down -0.37% on the day and a stunning -8.24% year to date.

The dollar slumped versus yen too, USD/JPY traded down -0.49% on the day, crashing through S2 and at one stage during the New York session threatening to breach S3. USD is down -4.28% versus JPY during 2020. The most significant USD fall during Thursday’s sessions came courtesy of Canada’s dollar. USD/CAD slumped close to S3, at 1.286.

USD/CHF and EUR/USD have returned to provide their near-perfect correlation over recent days; as the dollar drops, the euro rises. EUR/USD traded in a tight but bullish range during the day’s sessions, taking out R2 before giving back some gains later in the New York session.

Trading at a daily high of 1.2172 the most traded currency pair is trading at a high last witnessed since April 2018. At 20:00 hrs price was at 1.2144, up 0.25% on the day and 8.69% year to date.

Although the euro posted gains versus USD, against the yen and UK pound the single bloc’s currency fell sharply. EUR/JPY traded down -0.24% on the day while EUR/GBP traded down -0.36%.

The UK pound experienced gains versus USD during the day as both the UK govt and EU representatives continue what are (so far) cordial discussions. GBP/USD is currently trading at levels not seen since December 2019, up 2.31% year to date. The pair traded at 1.345, up 0.63% on the day, trading above the first level of resistance.

Sterling traders should still monitor their news feeds for any changes concerning the UK v EU divorce on January 1st 2021. GBP could experience sudden volatility and trade inside wide ranges as the exit date closes in.

Despite the bonhomie and encouraging soundbites emanating from the UK govt, the country is losing the free movement of goods, services, capital and people. A blow whose effects will only materialise once the UK is no longer a member of the 27 nation trading bloc.

Gold (XAU/USD) continued its recent recovery. Despite the risk-on sentiment gripping equity markets, enough investors are taking safe-haven bets on the precious metal to hedge their bets. The security traded up 0.49% on the day at 1840 per ounce; it’s up 1.59% weekly but down -3.36% monthly. On a year to date basis, the PM is up an impressive 20.36%, bettered by silver’s rise; up 33.70% year to date.

Economic calendar dates of note for Friday, December 4th that could affect markets

There were times when traders would eagerly anticipate the publication of the latest NFP numbers because of the volatile conditions the publication could cause. The opportunity to profit if you predicted the direction of USD correctly was a once in a month event.

However, such fundamental analysis bets are now lacking any attraction. Political events and other macroeconomic events tend to consume markets nowadays.

Still, traders and analysts will look for the NFP data published at 13:30 hrs UK time on Friday for evidence that the USA economy is in hiring mode before the Xmas holidays. Reuters predict an NFP number of 469K for November in comparison to the healthy 638K print for October.

Other notable calendar events include Canadian job numbers published at 13:30 hrs. USA import and export data is also delivered, which will also reveal the health of the USA recovery in recent months. European data published in the morning session include Germany’s month on month factory orders, forecast to come in at 1.5% rise. Various PMIs get published in the London session, including the UK latest construction PMI which Reuters think will come in at 52 above the 50 reading separating contraction from expansion.

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