Talking Points:
- Last week produced some out-sized moves across global markets, and this week has a plethora of drivers that can extend or reverse last week’s move. Key of which will likely be Federal Reserve speeches: Fischer and Tarullo speak on the 15th, Dudley, Yellen and Brainard speak on the 17th, and Dudley and Powell on the 18th.
- The U.S. Dollar is fast-approaching a 13-year highs while the S&P 500 is nearing a fresh-all-time high. But the price zones in both of these markets have shown multiple instances of resistance: Will this week bring the motivation to finally take out those highs?
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Last week produced some huge moves across global markets after the culmination of the U.S. Presidential Election, and this week we get to see how much staying power those moves may have. The economic docket is full of high-importance events on each day Tuesday-Friday; and Tuesday morning is especially busy with German, Italian and Euro-Zone GDP numbers being released along with British Inflation. Below, we’re looking at three of the biggest questions to be answered this week in markets.
Does the U.S. Dollar Breakout Have Staying Power?
This is something we’ve been looking at for the better part of the past four months, but with the Greenback now poised to take-out its 13-year high, this question is worth continued examination. This is also a theme that will almost certainly see considerable interest this week and not only because of the aggressive breakout after the election of President-Elect Donald Trump, but also because we’re going to hear from multiple Fed speakers ahead of the bank’s December meeting. Tomorrow (Tuesday), Stanley Fischer will speak at the Brookings Institution regarding Bond Market liquidity, and on Thursday we hear from Chair Janet Yellen as she speaks in front of Congress.
Last week ahead of the elections, we were seeing USD-weakness correlate with odds of a Trump-win. This hit fever pitch on the night of the election as the Greenback sank by -2.2% as it became more likely that Mr. Trump would be the victor. And as we discussed ahead of the elections, while it may have been easy to just associate that weakness with the fact that it appeared that many didn’t like Mr. Trump and that this could’ve been seen as some type of rebuke against the decision of American voters, more likely was the fact that a Trump win was somewhat of a surprise, and markets questioned whether the Federal Reserve would still be on track to hike rates in December in the event of a Trump win.
The U.S. Dollar is running up to a key resistance zone around the 100-level on DXY. The Greenback has made two prior attempts to eclipse this level over the past twenty months but, thus far has been able to break above.
Chart prepared by James Stanley
Are New Lows in Store for Oil Prices?
With all of the excitement in the Dollar, stocks and Metals last week, not much attention has been paid to deeper drops to Oil prices. WTI has just sunk down to a fresh three month low and this brings to question the ‘bigger picture’ setup in Oil. After last year’s calamitous drop in Oil prices, an aggressive bullish reversal started on the morning of Chair Yellen’s Humphrey Hawkins testimony in February of this year. This led to a near-100% move in Oil prices in the following four months, but since, resistance has begun to set-in. On the monthly chart below, we’re looking at a 17-year trend-line in WTI, first as support and then over the past 20+ months as resistance.
Chart prepared by James Stanley
And on the chart below, we’re looking at the Daily setup in WTI Oil. The 76.4% retracement of the 17-year move in WTI Oil is at $42.89, and this was swing-low support in September. With this morning’s price action breaking below that swing, we now have fresh Three-month lows, as we look at on the chart below:
Chart prepared by James Stanley
U.S. Stocks – Will Resistance Finally Give Way?
The S&P 500 has been in ‘bend not break’ mode for well-over a year now. In August/September of 2015, markets looked to be on the verge of collapse as weakness from China spread throughout the world. Then the Fed backed away hiking rates in September, stock prices re-ascended and traded near resistance until we finally got the first rate hike in nine years in December. But shortly after that rate hike, equity markets again collapsed and spent much of January selling-off. This lasted until February 11th, when Chair Yellen struck a very dovish tone at her Humphrey Hawkins testimony and, again, markets re-ascended with prices going right back towards resistance. Then during the Brexit referendum, we saw stocks sell-off again, only for buyers to jump in just two trading days later to bring on even more all-time new highs.
So, last week when Donald Trump won the U.S. Presidential Election, stocks sold off initially on the shock around an unexpected outcome: But in short order, as-in by the open of trading the following morning, stock prices had already re-ascended.
This is emblematic of the fact that the ‘really big driver’ for markets is still the ‘really big driver’ for markets; and that’s the Fed with their easy-money policies. With the Fed spending much of this year talking up the prospect of another rate hike, December has deductively become the ‘prime spot’ for that next move.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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