Markets Looking For Terra Firma After Becoming Unhinged

The softer than expected US jobs report sealed among the most challenging weeks since the first quarter of the year for investors. After rallying strongly in the last week of November, equities reversed course dramatically. The S&P 500 lost 4.6%, its biggest weekly drop since March, giving back nearly everything it had gained in the previous week (4.85%). The MSCI World Index (of developed markets) fell about 3.75% to return to its lowest level since September 2017. Paradoxically, the MSCI Emerging Markets Index fell a modest 1.3% and is at one-month lows. 

The 10-year US Treasury yield, a global benchmark, fell for a fifth consecutive week, the longest streak since April, and finished the week near four-month lows. The dollar fell against most currencies, except for the dollar-bloc, which are often perceived to be leveraged to world growth, though a poor Australian GDP figure and a dovish hold by the Bank of Canada did not help matters,and sterling, which is hobbled by the Brexit uncertainty. 

Let's review the technical condition as we prepare for next week. 

Dollar Index  

The uptrend line drawn off the September lows was violated on a closing basis at the end of last week. It finished the week on session lows (~96.50), but not at the week's lows that were recorded on December 4 a little below 96.40. It was only the third weekly loss since the third week in September. After trending higher from the lows in the second half of September, the Dollar Index has broadly traded in a 96.00-97.50 range. The technical indicators leave scope for the Dollar Index to slip further. The lower Bollinger Band begins the week near 96.25, and the 50-day moving average is near 96.35.Last month's low was recorded just above 95.65, and the 100-day moving average is found near 95.70. 

Euro

Since the middle of November, the euro has closed outside of the $1.13-$1.14 range precisely three times. The technical indicators seem to warn of risk to the upside in the coming days, but the sideways activity is whipsawing the readings. The trend line drawn off last month's highs comes in near $1.1435 at the start of the new week. The trend line drawn off last month's lows is near $1.13. The euro has closed once above its 50-day moving average since late September. It is found near $1.1415 now. The ECB meets this week. The euro has fallen on days the ECB meets this year, with September being the sole exception. The cut trimming of GDP and inflation forecasts could offset the confirmation that new net asset purchases will cease at the end of the month.  

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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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