Expectations of a new Business Cycle Warrant Pressure on USD
US index futures started the week in high spirits, trading in modest positive territory thanks generally supportive fundamental background. Oil prices continue to move higher ahead of the OPEC meeting on November 30 and are likely to hold onto gains after the second test of $43 resistance level. As expectations brew in the markets that global economy enters recovery phase of a new business cycle, the commodity market, in particular energy prices, should be the leading indicator of these expectations. Commodity markets, especially oil tend to outperform in this phase of the cycle.
Recovery of drilling activity in the US, major OPEC’s rival unexpectedly slowed despite rise in the rise prices, which further supported the market on Monday. Baker Hughes reported on Friday that rig count declined from 236 to 231 units.
Consumer confidence in the Eurozone declined took predictable downward path, the corresponding index fell to -17.6 points in November against the forecast of -17.7 points. This is a first indication that the shock to the EU economy from the reimposed lockdowns may be in line with general level of concerns.
Since the start of November, the best performance among major currencies has been shown by currencies tied to business cycle while the currencies where defensive assets prevail underperformed. The greenback turned out to be the main outsider:
The index of US currency (DXY) is expected to play with 92.00 support this week without conclusive movement below the level, thanks to steadily rising optimism in the leading commodity markets, keeping expectations of a new investment cycle high.
Price action in the equity markets is expected to remain muted in the first half of this week, as the US celebrates Thanksgiving on Thursday and the start of shopping season on Friday. Economic calendar this week is relatively uneventful with durable goods orders, US Q3 GDP, Core PCE inflation set to hit the wires Wednesday. Perhaps the most important report this week will be the Fed's November meeting minutes, which will be scrutinized for clues about possible increase in QE purchases in the next month.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.