Belting them up - the US dollar is still strong

Originally published by AxiTrader

Quick Recap

The US dollar is still kicking butts and taking names across global forex markets. Sure the Aussie gained a little of its lost poise and is back above 74 cents but the Yen is weaker again with USDJPY at 113.31 this morning, euro is down at 1.0550 – which is better than it was earlier and Asian and other EM currencies remain pressured.

Naturally stocks in the US are closed but European markets had a positive night and that, along with the metals rally, and a broker up grade of Rio Tinto Ltd (AX:RIO) to $66 has the futures traders on the ASX marking the SPI higher this morning by 16 points.

Ohhh, and OPEC IS edging toward a deal.

What You Need To Know

International

• The US dollar’s surge is causing some real ructions in emerging markets. Turkey’s central bank raised rates from 7.5% to 8% but the lira still got slammed making another record low and USDTRY sits at 3.4439 this morning.

• I could write about this forex market move for the US dollar forever. But given time and space constraints let me reiterate - these moves in EM currencies look overdone in the short term they are likely to remain under pressure for some time. The reason I say this is because EM was a safe harbour for capitol with a decent return or prospect of capital growth in a world where developed market economies were mired in the low growth low rate world. Trump appears to have caused a phase transition in expectations about relative growth and inflation and that means relative attractiveness.

• So the constant flow into EM we’ve seen for the past 6 months now suddenly is trying to get out and is causing a bottleneck which is driving currencies to their weakest levels in years. There will be a hiatus, and Trump may yet prove a disappointment. But time is on the US dollar’s, not emerging markets, side.

• Anyway, elsewhere

• The OECD is calling for more public spending and growth friendly policies. This is why Trump comes at such a good time to get traction and to be given the benefit of the doubt. Central banks were already saying a year or more ago they can’t do it all and we saw that the G20 in China this year made similar comments. That meant that finance ministers and Treasurers themselves knew that fiscal spending was coming. So Trump resonates.

• China is getting serious about the $2.9 billion in off-balance sheet wealth management products in the shadow banking system it seem. Reuters reports the CBRC , demanded banks apply a more "comprehensive" approach to cover "substantive risks" related to off-balance sheet activities, or shadow banking.

• Also China is keen to step into the TPP breach and promote trade deals. It's going to be an interesting 4 years for geo-politics.

Australia

• It looks like it is going to be a good day ahead for local stock traders after a quieter index performance yesterday. Naturally with gold under pressure there was some pain for the gold miners but a broker upgrade to Rio and continued strength in the metals sector will help the miners more broadly it seems.

• So, to the outlook. Futures were up 20 points earlier suggesting that the market might be able to breach and hold above 5500 to close the week very bullishly. But the SPI is only up 13 now suggesting the 5500 level that would not break a few months back on the physical ASX might still be a big hurdle. But if it can we could see a nice run next week.

• Naturally there is still a lot of resistance at 5500. Yesterday's physical high was 5503 before the close at 5485. And there is also a ot of doubt that the rally in Shanghai metals can last. But there is also some money on the sidelines. Time will tell.

Forex

• As discussed above it's all about the US dollar again today. But as readers know I've been talking about this paradigm shift, phase transition, in forex markets for a little while now. Nowhere in the G10 currency space is this more obvious than with the Japanese yen. Back above 113 this morning the Yen looks completely overcookoed on the dailies. And I am expecting a pause and a pullback at some point. But when I look at USDJPY in terms of my weekly system - same as the dailies but just weekly bars - it looks like USDJPY will eventually head to 120 and above.

• Weekly USDJPY looks a little overdone as well but my system is still long and my LT ma crossover could turn soon.

• Elsewhere in the G10 the Aussie is back above 74 cents and I get the feeling traders don't quite know what to do with it in this 50 points either side of 74 cents. Traders and investors are battling through the competing forces that are either supportive or weigh on the value of the AUDUSD.

• Euro is at 1.0550 and GBP is at 1.2445.

Commodities

• OPEC is edging closer to a deal. Russia seems to be on board according to reports overnight. The Iraqi's look like they might be coming around as well oil traders not overly excited though with WTI largely unchanged at $48 a barrel.

• Gold $1183 – still underr intense pressure from rates and market ebullience not to mention the US dollar

• Copper, boomity boomity boom boom boom. Sems the metals are still in favour and with traders wondering where all the supply has gone they are now wondering the same about nickel. It appears that markets could be tighter than everyone though

Today's key data and events (all times AEDT)

• Australia - Nil
• New Zealand - Trade Balance (MoM) (Oct), Trade Balance (YoY) (Oct), Exports (Oct), Imports (Oct) (8.45am)
• China - Nil
• Japan - Tokyo CPI ex Fresh Food (YoY) (Nov), Tokyo Consumer Price Index (YoY) (Nov), Tokyo CPI ex Food, Energy (YoY) (Nov), National Consumer Price Index (YoY) (Oct), National CPI Ex-Fresh Food (YoY) (Oct), National CPI Ex Food, Energy (YoY) (Oct) (10.30am); Corporate Service Price (YoY) (Sep), Foreign bond investment (Nov 18), Foreign investment in Japan stocks (Nov 18) (10.50am)
• Germany - Import Price Index (YoY) (Oct), Import Price Index (MoM) (Oct) (6pm)
• EU - Nil
• UK - Nationwide Housing Prices n.s.a (YoY) (Nov), Nationwide Housing Prices s.a (MoM) (Nov) (6pm); Gross Domestic Product (QoQ) (Q3), Gross Domestic Product (YoY) (Q3), Total Business Investment (YoY) (Q2), Total Business Investment (QoQ) (Q2) (8.30pm); CBI Distributive Trades Survey - Realized (MoM) (Sep) (10pm)
• Canada - Nil
• US - Wholesale Inventories (Oct), Goods Trade Balance (Oct) (12.30am); Markit PMI Composite (Nov), Markit Services PMI (Nov) (1.45am); Baker Hughes US Oil Rig Count (5am); CFTC Gold NC net positions, CFTC USD NC net positions, CFTC Oil NC net positions (6.30am)

Have a great day's trading