Markets are wary in the last weeks of the year awaiting passage of the new US tax law
The Euro fell, leading major currencies lower against the US Dollar as trading volumes thinned ahead of the holidays and year-end. A large build in speculative long Euro bets to the largest in over ten years saw a start of some unwinding of those positions. Expectations rose that the US tax bill would be passed by year-end as Republicans worked to put the finishing touches together.
Wall Street stocks surged to fresh record highs led by the S&P 500, up 1.1%. The Dow gained 0.57% to 24,656 (24,537 Friday).
The yield on the US Ten Year note was unchanged at 2.35%. Germany’s Ten Year Bund yield dropped one basis point to 2.30%.
Outlook: Markets got a glimpse of thinning volumes on Friday even as the focus remained centered on the U.S. Tax plan. Expectations that it would be done by this week lifted Wall Street and supported the Dollar, giving it a bid tone.
This is the last full week of the year into the holidays and markets will thin further. There are no major data releases today. The Bank of Japan policy meeting is on Thursday.
Market positioning will have a much more pronounced effect on the respective currencies.
Trading View: It’s all about thin market conditions and positioning. The latest CFTC/Reuters report for the week ended 12 December 2017 saw total net speculative US Dollar longs trimmed further. There was a notable shift in the Euro where long bets increased to the largest total in 10 years.
The Dollar Index (USD/DXY) finished up 0.4% at 93.93 (93.458 Friday). Immediate support lies at 94.00 and 94.20. We would need to see a break up through 94.20 to see further gains in USD/DXY. Immediate support can be found at 93.50 and 93.20. A break down through 93.20 could see further losses. With the Euro taking up almost 60% of the weight in the Dollar Index, this week’s EUR/USD moves will be crucial.
EUR/USD – closed at 1.1752 from 1.1798 Friday. The ECB’s sluggish inflation forecast over the coming three years weighed on the Single currency. EUR/USD traded to an overnight high of 1.1812. Last week we saw the EUR/USD range bound between 1.1720 and 1.1870. Immediate support for EUR/USD lies at 1.1720/30. If that breaks, the next support level comes in at 1.1670, a break of which could see 1.1550. As markets thin, anything is possible. Immediate resistance lies at 1.1770 and then 1.1800. The strong resistance at 1.1860/70 should hold in this environment. Likely range today 1.1720-1.1770. Look to sell rallies.
USD/JPY – closed up at 112.70 which are close to its overnight highs. The US Ten year yield was unchanged at 2.35%. Net speculative JPY shorts were lightly trimmed to -JPY 114,123 contracts from -JPY 114,267 in the latest CFTC/Reuters report. Net total speculative JPY short bets are still large and remain among the top totals for 2017. Japanese Tankan Manufacturing Index bettered expectations on Friday. Immediate resistance can be found at 112.90/113.00. The next resistance level can be found at 113.15. Immediate support lies at 112.50, followed by further support at 112.30 and then 112.10. No change is expected from the Bank of Japan as it holds it’s last policy meeting for the year. The BOJ is expected to be the last of the major central banks to normalize it’s policy settings. Which is keeping the USD/JPY supported. Given that the speculative community is pretty short JPY bets, the risk is for unwinding in these thin markets. Likely range 112.00-80. Look to sell USD/JPY rallies.
GBP/USD – finished with mild losses to close at 1.3320 (1.3340 Friday). Even as the EU leaders agreed to advance Brexit negotiations to the second state, negative sentiment abounds. Talks will involve more complex and difficult issues such as trade and the transition period. The Pound traded to an overnight low of 1.3302 were immediate support lies. Further support can be found at 1.3280 and then 1.3260. Immediate resistance to Sterling lies at 1.3350 and then 1.3380. While the speculative long Sterling bets aren’t large, they are among the few for this year. Likely range today 1.3300-1.3370. Prefer to sell rallies at this stage.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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