Does Key Reversal In S&P 500 Put The Santa Claus Rally At Risk?

It was another difficult week for the greenback, which moved lower against all the major currencies.  The Scandis led it, helped by risk-on appetites and Norway's central bank penciling in its first rate hike around mid-2022.  The hope of a UK-EU deal appears to have spurred short-covering, which lifted sterling to new 2.5-year highs, though pulled back a bit ahead of the weekend.  

Germany led the major equity markets higher as the DAX advanced by nearly 4%, which turned it positive for the year.  However, the global recovery is being led in Asia, and the MSCI Asia Pacific Index rose for the seventh consecutive week.  In the US, the Russell 2000 outperformed the S&P and Nasdaq.  Benchmark yields finished higher on the week, and this seemed like some profit-taking ahead of year-end more than a fundamentally-driven move.  We note that several countries, including Germany, France, Sweden, and Portugal, saw a greater backing up than the US. 

At pixel time, we still await word from the UK-EU negotiators and the US Congress about their stimulus efforts and boost the federal government's spending authorization.  With the pandemic out of control and what appears to be the large cyber attack on the US, it seems to be a particularly poor time for a government shutdown, let alone a presidential veto of a defense bill over the liability of social media companies for user content and dropping the use of Confederate generals' names for American bases. 

Dollar Index:   The 92.00-94.00 trading range that framed the Dollar Index from around mid-July ended quietly in late November.  It pushed below 90.00 last week for the first time since April 2018.  A quiet pre-weekend session was recorded inside the previous day's range.  The technical indicators are mixed, and the Slow Stochastic did not fall to new lows with the Dollar Index.  The 90.20-area offers the initial cap, and it was approached ahead of the weekend.  Stronger resistance is in the 90.60-90.80 band. On the downside, the next interesting chart point is seen around 89.00.  (UDN)

Euro:  The euro broke out of its $1.16-$1.20 range in late November, ahead of the ECB meeting, which surprised us.  It moved into a $1.2060-$1.2180 range before taking another leg up last week to almost $1.2280.  The MACD and Slow Stochastic are overextended but still moving higher, confirming the new highs in spot.  While initial support now is seen around $1.2200, the near-term trendline is near $1.2165, and the trendline off the election-eve low near $1.06 begins next week by the 20-day moving average (~$1.2075).  The upper Bollinger Band is around $1.2310.  (FXE)

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Read more by Marc on his site Marc to Market.

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