The Dollar King Damages All But Not America

US equity markets print record highs, taking the US dollar with them

Jan 8 • Market Commentaries • 1649 Views • Comments Off on US equity markets print record highs, taking the US dollar with them

The NASDAQ 100 rose by 2.35% during Thursday’s New York session, coming close to a record high and threatening to breach the 13,000 round number level for the first time in its history. The SPX 500 printed a record high, breaking through the 3,800 level-handle for the first time and trading 1.51% up at 3804. The DJIA 30 rose by 0.73% remaining above the 31,000 level at 31,055.

The rise of the leading US equity markets came after America began to take stock of the country’s parliament building’s ransacking on Wednesday evening by hysterical Trump supporters whipped into a frenzy by his call for insurrection. The chaos led to four deaths, multiple injuries but a noticeable lack of arrests.

Wednesday evening’s events overshadowed the Democrats’ celebration after winning two more Senate seats, meaning that Kamilla Harris, the vice president, now has the ultimate power to create laws.

Markets have risen in the US during recent sessions partly due to the belief that once Biden and Harris become inaugurated, they’ll quickly move to enact further fiscal stimulus to alleviate the pressure on those who have been hit hardest by the pandemic and associated unemployment. The vision of stability with the Democrats controlling decision-making is also a promising development for global investors.

Fundamental economic calendar events for the US concerned the latest weekly unemployment claims coming in at 787K just below the forecast. The trade balance also deteriorated significantly; the reading came in at -$68.10b. The ISM non-manufacturing PMI reading beat forecast; coming in at 57.2.

The US dollar rose during the day’s trading sessions as the risk-on trading environment gathered momentum. The DXY dollar index (an index of five different currencies versus USD) rose by 0.40% on the day, trading at 89.88 threatening to breach the psyche level of 90.00.

The safe-haven currencies of yen and Swiss franc slipped during the day’s sessions as the risk-on sentiment spread to the forex markets. USD/JPY traded 0.82% up at 103.85 while breaching the second level of resistance. Price is close to breaking through the 50 DMA on the daily timeframe sited close to the 104-round number.

In comparison, USD/CHF traded up 0.75% and broke through R2 but is still trading close to lows not seen since December 2014, illustrating how out of favour the globe’s reserve currency has been during the pandemic months.

The dollar’s gains extended to rises versus EUR and GBP. EUR/USD fell by -0.51%, and GBP/USD fell by -0.40%, Germany’s main equity index the DAX closed at a record high. USD also rose significantly versus both antipodean currencies; AUD/USD traded down -0.72% while NZD/USD traded down -0.63%.

WTI oil traded in a tight bullish daily range on Wednesday, printing an intraday high above $51 a barrel, up 0.36% at $50.88 per barrel at 18:40 hrs UK time. Due to the bullish risk-on atmosphere which enveloped global markets, it was no surprise that precious metals slipped marginally on Thursday. Gold traded down -0.24% and silver down -0.44%.

Economic calendar events to monitor closely during Friday, January 7

Germany’s balance of trade figures should reveal a deterioration, according to the Reuters forecast. Industrial production for Europe’s engine of growth is also forecast to come in lower than the previous month’s reading. Both results could affect the value of EUR versus its peers as could the unemployment rate, which should come in at 8.4% for the Eurozone. The UK house price index is forecast to come in at 0.8% up for December, capping a 6.8% increase annually. From the USA we get the latest NFP job numbers, the reading is forecast to come in at 112K jobs created in December with the unemployment rate at 6.7%. If the forecast is beat or missed the value of USD could get impacted. Canada also publishes a series of unemployment and jobs data. The unemployment rate forecast is 8.5%, with -20K jobs lost during December.

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