Euro Remains in a Bearish Tilt
Technical signals favor the bull camp in the dollar despite economic data that could have sent the index lower. However, US scheduled data has been somewhat mixed, and the trade is aware of the resiliency of the US economy and is also confident in the US Fed’s capacity to manage market psychology. On the other hand, recent data shows cracks in the US economy which have recently been offset by an increase in flight to quality interest in the dollar from rising financial contagion fears in China. In conclusion, the dollar is likely to continue to win by default with key support the top of the November downtrend channel at 103.60 which has become key support.
While the Pound could be the most likely challenger to the dollar, the trade gives the edge to the dollar even though fundamentals are not more impressive in the US than in the UK.
Apparently, the euro remains in a bearish tilt with the trade embracing soft German data over other positive data from the euro zone earlier this week. Along those lines German factory orders for October fell overnight by a very significant 3.7% (shockingly weak) and euro zone retail sales on the month managed a very slim gain of 0.1%. Clearly, the holiday shopping season in Europe has not been a benefit to the continent.
INTEREST RATE MARKET FUTURES
With a higher high overnight and the highest trade since the middle of September, the bull camp has extended its control into another session. In addition to a market focus on soft data (at the expense of good data results) treasuries are likely seeing flight to quality buying from the residual impact of the Moody’s downgrade of Chinese debt. It is also possible that intense fighting in Gaza combined with a US move to revoke visas of those Israelis involved in Gaza violence indicates a slight souring of US/Israel relations as the White House attempts to tone down Israeli aggression.
Other supportive developments overnight were a very soft 3.7% decline in German factory orders for November and an expected GBP S&P global construction PMI reading.
The North American session will start out with a weekly private survey of mortgage applications followed by the November ADP employment survey which is expected to have a modest uptick from October’s 113,000 reading.
STOCK INDEX FUTURES
Global equity markets overnight were higher except for the Shanghai and Russian markets. So far, the equity markets have been able to discount the fear of slowing/softer earnings because of the unending hope for lower US rates. Therefore, the market today will be hyper focused on the ADP employment reading, with the bull camp needing slightly soft readings but positive enough readings to maintain a balance of forward expectations.
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