25 Nov: Risk-on mood gathers pace as Biden transition gets the green light. Big day of US data ahead today, ahead of Thanksgiving, Thursday.

25 Nov: Risk-on mood gathers pace as Biden transition gets the green light. Big day of US data ahead today, ahead of Thanksgiving, Thursday.

It has been a big day on Tuesday, with the DJI passing 30,000 for the first time, the Russell Index (measuring the performance of approximately 2,000 smallest-cap American companies) also making a new all-time high and with oil (WTI) finally breaking through the 43.50 barrier – and heading straight to 45.20 before pulling back a little at the end of the session, but still up by 4.5% over the session. In the FX markets, the US$ remains under pressure, but has yet to break out of the ranges that have recently contained it against most of the major counterparts, albeit that it looks as though it may do so sooner or later as it comes under increasing downside pressure, and a break of 92.00 support in the DXY seemingly iminent (Weekly Chart below).

The DJI has broken through 30,000 for the first time, with the main US and European indices all up by around 1.5% as traders grow increasingly encouraged about the prospect of an ongoing economic recovery in 2021 due to the progress on vaccines and the formal go-ahead for President-elect Biden’s transition to the White House. The appointment of Janet Yellen as US Treasury Secretary, seen as a very credible choice for the position, also did nothing to hurt the positive mood.

The FX markets have seen a strong performance by the commodity bloc currencies, with the Aud$ making a new 2 month high and the Kiwi breaking above 0.7000 for the first time since June 2018. Elsewhere, the EU majors and the Jpy remain relatively range bound for now.

In the commodities markets, oil prices spiked to the highest levels since March on Tuesday, as optimism over the economic outlook for 2021 strengthens, while the metals slumped, with the metals down by almost 2%, sending Gold back to 1800.

In terms of the data on Tuesday, US consumer confidence fell more than expected in November amid the resurgence in Covid infections and business restrictions, reinforcing expectations for a sharp slowdown in economic growth in Q4. Another rescue package is expected only after President-elect Joe Biden is sworn in on Jan. 20 but if the current enthusiasm for a recovery continues into the New Year we can expect a strong bounce in the December figures. On a brighter note, house prices continue to surge, as outlined by the Case-Shiller Index, covering 20-metro-areas, which showed that house prices jumped by 6.6% from a year ago in September after rising 5.3% in August.

Earlier data from Europe indicated that the German Q3 GDP growth was finalised at 8.5% qq and a large part of the large decline seen in Q2 was offset although the solid gains were still 4.0% lower in the Q3 of 2020 than in the Q4 of 2019. The Germany IFO Business Climate dropped to 90.7 in November, down from 92.7, missing expectations of 90.8, while the Current Assessment index dropped slightly to 90.0, down from 90.3 but above expectations of 97.4. The Expectations index plunged sharply to 91.5, down from 95.0, and missed expectation of 93.8. The IFO institute expects German economy to shrink again in Q4.

Wednesday will have a decent amount of US data to be released ahead of the Thanksgiving holiday, but before then the points of focus will be the RBNZ Financial Stability Report and a speech from the Governor, Orr, while the Q3 Australian Construction Work Done (exp -2%%) is the only other point of interest in Asia. The EU Financial Stability Report will be the sole item from Europe (although the UK Autumn Budget Statement will be released in the UK evening), which will generally wait for the US to get busy – which it will! The data from here will feature the Q3 US GDP (exp -2%qq, +33%yy), Personal Consumption/Expenditure figures, the October Durable Goods Orders (exp +1%mm), New Home Sales (exp +1.5%mm) and Wholesale Inventories, the November Michigan Consumer Sentiment Index (exp 77; prior 77), the FOMC Minutes, the weekly Jobless Claims and the EIA Weekly Crude Stocks Change. Quite a mouthful to digest! Have a good day.

Economic data highlights will include:

Wed: RBNZ Financial Stability Report, Governor Orr Speech, Australian Construction Work Done, EU Financial Stability Report, UK Autumn Forecast Statement, US Durable Goods Orders, Wholesale Inventories, US Personal Consumption/Expenditure, GDP, FOMC Minutes, Michigan Consumer Sentiment Index, New Home Sales, Weekly Jobless Claims, EIA Weekly Crude Stocks Change

FX: DXY 92.21 (-0.30%)

Bonds: US10Y; 0.883% (+2.66%), German 10Y; -0.564% (+2.69%), UK 10Y; 0.327% (+9.14%), Australian 10Y; 0.902% (+4.6%), NZ 10Y; 0.917% (+13.40 %), China 10Y; 3.315% (+0.93%)

Stock Indices: DJI; +1.54%, S+P; +1.60%, NASDAQ; +1.3%, EUStoxx50; +1.3%, FTSE100; 1.55%, Shanghai Composite; -0.34%, ASX200SPI: +1.50%

Metals: Gold $1805 oz (-1.76%), Silver $23.18 oz (-1.78%), Copper $3.305 lb (+1.46%), Iron Ore $123.67 per tonne (NYMEX) (0.08%),

Oil: WTI $44.80 pb (+4.60%)

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Trend Table: November 25, 2020                                                 

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In the trend table below, when looking at the charts for a particular FX pair, index or commodity, we are we searching for 2 or 3 consecutive boxes of the same colour which might indicate a trend – and a possible trading opportunity. Consecutive (1 & 4 hour, 4 hour/daily, daily/weekly) green boxes indicate a possible short/medium/long term uptrend; red, a possible downtrend, while blue signifies a neutral bias (range trade possibility).  The boxes on the trend table merely replicate the look of the charts for the specific time-frame in MT4/5. Assets with a mixture of colours are pretty much ignored as choppy conditions seem likely to prevail.

For instance, if we see consecutive green boxes in the  1 hour and 4 hour time-frames for the FX pair “EURUSD”, that would signify the chance of a move higher in that pair over the next 24 hours. If the dailies were also green that would add to the bullish conviction from a slightly longer term perspective, and if the weeklies are also green then it would give added credence to the longer term bullish view, albeit that it might take longer for the trend to play out, so patience will almost certainly be required.   The opposite would be true of red boxes, which could signify downward momentum. The strength of any possible trend depends on the time-frame, with the longer term (daily, weekly charts) obviously having a greater overall weighting than the short-term charts.

In the near term though, the 1 and 4 hour charts are what are likely to combine to indicate the possibility of a trading idea for the next few, possibly up to 24, hours.

Note that a longer term bullish view (green daily/weekly boxes) does not discount the possibility of near term dips (i.e. Red 1 & 4 hour boxes), which may indicate near term weakness and suggesting that we should be looking to buy dips for a longer term rally – and vice versa if the near term boxes are green and the longer term; red.

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Outlook:                        

The EU majors and the Jpy remain rangebound against the US$, although the commodity currencies are firm due to the growing optimism over the future economic outlook and, in the longer term, the charts suggest that the dollar will remain under pressure, so buying dips is still preferred from a strategic stance.  It is going to be a big day for US data ahead of the Thanksgiving holiday so anything could happen but I do still like the idea of buying dips in the majors (Aud, Nzd, Eur and Gbp).

Stocks had another good day, up by 1.5% and looks as though they may head higher still. As I said yesterday, I like to be long the stock markets in general; especially the ASX, but I would not be overly enthusiastic up at these levels. Of more general interest – in the monthly charts – note the overbought nature of the S+P and the increasing bearish divergence in the DJI, which may be trying to tell us a story of what to expect next year when we are all overly bullish about this recovery!

Gold has seen the move to 1800 that we outlined yesterday and, on a break of the 200 DMA at 1797, would seem set to head towards 1770, possibly 1725.

WTI also did as we thought, taking out the strong 43/44 resistance and may now be looking for a stronger trend higher, where I think the target is somewhere around  50/55.

EURUSDUSDJPYGBPUSDUSDCHFAUDUSDNZDUSD
1 HourNeutral – Turning Higher?Turning NeutralNeutral – Turning Higher?NeutralTurning Higher?Turning Lower
4 HourTurning NeutralTurning HigherTurning NeutralTurning NeutralNeutral – Turning Higher?Turning Neutral
1 DayNeutral – Turning Higher?Neutral – Turning Higher?Turning Higher?NeutralTurning NeutralTurning Higher?
1 WeekNeutral – Turning Lower?Turning NeutralNeutral – Turning Higher?Turning Higher?Neutral – Turning Higher?Turning Higher
DXYS+PASX200GOLDSILVEROIL_WTI
1 HourNeutral – Turning Lower?Turning HigherNeutral – Turning Higher?Possible Basing FormationNeutral – Turning Higher?Up
4 HourTurning NeutralNeutral – Turning Higher?Turning HigherDownTurning Lower?Up
1 DayTurning NeutralTurning NeutralTurning HigherNeutral – Turning Lower?Turning NeutralNeutral – Turning Higher?
1 WeekPossible Basing FormationUp – OverboughtUpDownDownNeutral
EURJPYEURGBPGBPAUDAUDJPYEURAUDAUDNZD
1 HourTurning NeutralTurning NeutralTurning NeutralPossible Topping FormationTurning NeutralTurning Higher?
4 HourTurning HigherTurning NeutralNeutral – Turning Lower?Turning Higher?Neutral – Turning Lower?Bullish Divergence
1 DayTurning NeutralTurning NeutralTurning NeutralTurning NeutralTurning NeutralTurning Lower?
1 WeekNeutral – Turning Lower?Neutral – Turning Lower?Turning NeutralTurning NeutralTurning NeutralTurning Lower

WTI; Daily

Gold; Daily

DJI; Daily

ASX; Daily

NzdUsd; Daily

AudUsd; Daily

DXY (US$ Index): Weekly

 

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