A Look At The Charts Ahead Of UK Election And US Tariff Decision

The strength of the US jobs report stopped the weaker dollar that was threatening to emerge. There are two risk events in the second half of next week, the UK election and Trump's decision on the December 15 tariffs. The market expects a Tory victory, allowing Brexit to proceed, and for the US to at least postpone the new tariffs. A surprise on either one would likely have significant impact on the foreign exchange market. Ahead of those events, we anticipate the dollar to recoup some more of its recent losses and the major currencies. 

Latam currencies have been under strong downside pressure, prompting intervention recently by Brazil and Chile. Latam currencies stabilized last week.They (Chile, Colombia, Brazil) accounted for three of the four best performing emerging market currencies last week. The Hungarian forint rounds out the top four. The JP Morgan Emerging Market Currency Index has edged higher in five of the past six sessions.  

After the recent sharp pullback, stocks look poised to rally into year-end. Emerging markets have lagged behind the major bourses, but could play some catch-up in a risk-on environment. The MSCI Emerging Market Index has gained 8% this year while the MSCI developed market index is up 21%.

US yields (2-yr to 10-yr) were virtually unchanged last week. Ten-year yields were lower in Europe, though the UK was a notable exception. Asia Pacific yields were higher. Gold gave back the week's gains after the US jobs report and now looks to have a running start at support near $1450. January light sweet crude oil reached almost $60 a barrel ahead of the weekend. It is the highest level in nearly three months. Optimism on trade, a larger than expected drawdown in US inventories, and indications that OPEC+ are promising to deepen output reduction helped lift crude prices.

Dollar Index

The jobs data allowed the Dollar Index to snap a five-day decline ahead of the weekend. It fell to about 97.35, a one-month low, which is also about the middle of this year's range. The pre-weekend gains carried it to approximately 97.85, retracing in one fell swoop 38.2% of the decline. The next retracements and chart points are found between 98.00 and 98.10. Also, after settling below the 200-day moving average on Wednesday and Thursday, it closed back above it (~97.65) before the weekend. It also had closed below its lower Bollinger Band (~97.50) but finished the week back inside. The MACD and Slow Stochastics are still reflecting the past downside momentum, and in the current context, they may be less of a guide. 

Euro

The euro reversed higher on the last day of November and saw strong follow-through buying to start the week in response to disappointing US ISM data and trade jitters. It peaked in the middle of the week a little above the highs set in late November just above $1.1100. Poor German factory orders data helped solidify the gap, and the US jobs data sent it back to $1.1040, almost retracing 61.8% of its bounce and returning to the 20-day moving average (~$1.1045). The technical indicators do not seem particularly helpful here, but after testing the upper end of the range, the risk is a test on the lower end, which is found in the $1.0980-$1.1000 area. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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