Can The Dollar Find Traction Even If The Employment Data Disappoint?

Overview: The global equity rally picked up this week as it closed in 2019. The MSCI Asia Pacific Index gain today and is up in nine of the past 10 sessions. It has fallen only in one week since the end of October. South Korea's Kospi led today's advance with a nearly 4% rally on the back of talks that were later played down between Hyundai and Apple. Europe's Dow Jones Stoxx 600 is at its best level today since last March and is posting gains for the fourth consecutive week. US shares are trading higher after the major benchmarks rallied to new record highs yesterday. The backing up of yields, led by the US this week, did not damage those animal spirits. After rising more than 15 bp this week, the US 10-year benchmark is flat today (~1.08%), while European yields are lower as peripheral bonds outperform the core. The widening US premium may be part of the dollar's upside correction story we suggested for the first part of the New Year after sharp losses into the end of the year. However, after this week's events both with the virus and drama in Washington, the argument that the bad news has been discounted may be somewhat less convincing. In any event, the dollar is firmer today. Among the majors, its gains are concentrated against the complex of European currencies, though sterling is a notable exception, largely holding its own against the greenback. Emerging market currencies are also mostly heavier after the JP Morgan Emerging Market Currency Index fell by more than 1% yesterday, its largest decline since last September. Rising yields also appear to have dimmed gold's luster. In the middle of the week, it has tested $1960 and was sold through the five-week uptrend line just above $1900 today. Stop-loss selling saw gold drop below $1880 before finding a bid. Oil is part of the reflation trade, and it is at its best level since last March. February WTI is a little above $51. It, too, has been up every week since the end of October, but one. It settled a little below $36.60 at the end of October. Brent is above $55 a barrel for the first time since last February.

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Read more by Marc on his site Marc to Market.

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