Weekly Summary
US Dollar Outook –
Changes are in the air. The US Fed is likely to modify its forward guidance wording to send a signal to the market that interest rate hikes should commence from about the middle of next year. With an improved economic outlook gradually the market is losing its shudders with the concept of tapering. The US economy just keeps on showing signs of growing strength with the Dow now at 17,280. A new language is expected to stress that there is no urgency to raise rates and that the timing is highly dependent on incoming economic data. But the removal of the wording "considerable time" sentence would likely strengthen market perception of a mid-year rate hike and that all points to growing dollar strength. However, in the short term, the Dollar Index does show signs of being overbought and a mild pullback for profit taking is on the table. With the Dollar index futures the market is having a tough time to push thru the 90 mark with consistency so a pull back is expected to 77 because all the technical indicators show the Dollar index is indeed is overbought and a pull back with profit taking is imminent in the weeks ahead.
US Dollar Outook –
Changes are in the air. The US Fed is likely to modify its forward guidance wording to send a signal to the market that interest rate hikes should commence from about the middle of next year. With an improved economic outlook gradually the market is losing its shudders with the concept of tapering. The US economy just keeps on showing signs of growing strength with the Dow now at 17,280. A new language is expected to stress that there is no urgency to raise rates and that the timing is highly dependent on incoming economic data. But the removal of the wording "considerable time" sentence would likely strengthen market perception of a mid-year rate hike and that all points to growing dollar strength. However, in the short term, the Dollar Index does show signs of being overbought and a mild pullback for profit taking is on the table. With the Dollar index futures the market is having a tough time to push thru the 90 mark with consistency so a pull back is expected to 77 because all the technical indicators show the Dollar index is indeed is overbought and a pull back with profit taking is imminent in the weeks ahead.
Eur/USD -
The EUR/USD has reversed some of the losses of the week before to close higher on Friday,but there seems to be very little more steam in the trade in terms of data and with the end of year approaching it is more likely that the slightest of pullbacks could gather momentum and turn into a rout. On the upside, should there be a little bit more steam in this trade, then resistance is going to lie at the 1.2500 level where any successful breach could take us to the 1.2550 and 1.2600 levels in quick succession. But more likely a test of the downside support is seen at the 1.2300 level with any successful breach opening the door for more shorts towards the 1.2250 level and 1.2200. A significant pull back of the Eur is expected.
Crude Oil -
Crude oil (WTI), is closely related to currency movements. WTI prices are close to the support at 58.32. With the market generally in oversold conditions, we should see a short-term consolidation phase. However, in the longer term, the bearish breakout in late November from a 3-year distributive phase implies a further downside risk at $48.92 in 2015.
Oil currencies -
In the forex markets, the NOK, RUB, CAD and MXN, are all commonly known as the “oil currencies”
The set of 4 currencies have had a torrid week as a result of the OPEC failure to cut production and market sentiment drifting lower for WTI crude. All 4 currencies this week came under severe selling pressure as traders perceived a slackening demand for crude energy products would translate into less demand to hold the 4 oil currencies. All 4 currencies are closely correlated to movements in WTI.
Lower Norwegian interest rates coupled with weaker oil prices are the 2 factors driving the USDNOK to a multi-year high of 7.3674.
With the RUB, the decision by the Russian central bank to increase its base rate 100bp to 10.50% had very little effect to stabilize the RUB as traders perceived weakness and pushed the USDRUB to 57.974.
The USDCAD rose to 1.1500 as approximately every $10 move in oil prices, makes the CAD
move about 3-5 cents, which again highlights the importance of Canbada’s
largest export.
USDMXN is now at a five year high at 14.8359, very near the Banxico’s 1.5% upper band, as expectations are lower now for direct foreign
investment in Mexico.
The increase in US production, and Russian production, together with OPEC failing to to reach consensus on production cuts, all point to a further weakening of the crude loses its dominant role in the management of global crude markets. Further pressure on crude oil expected this week.
Pieter Bergli - DeLoren Trust Holdings
Education for the forex markets
