Chart of The Day Bearish USD

Bearish USD: Trump signed it. The HK Human Rights bill that has been passed by both the House and Senate landed on the US president’s lap last week, and there was some anticipation about whether Trump will sign it into law or not, given the opposition from China and impact on the protracted “Phase 1” trade negotiations between the two countries. In the end, Trump did not seem to have much choice. If he had vetoed it, his decision would likely to be overridden by the Congress anyway, given that just 2/3 of votes are needed and the bill already garnered near-unanimous support before. In terms of substance, the law requires annual review of HK’s special autonomous status for preferential trade treatments by the US. It would also allow for sanctions against individuals deemed responsible for undermining that autonomy and for human rights abuses. However, the symbolism of it may matter more, given what is likely to perceived as an overt interference in China’s internal affairs by the US. Therefore, all eyes will be on just what kind of responses China may muster, and whether it would derail the trade negotiations

The positive US data bag brought cheer and relief to the markets this Thanksgiving. Second reading of 3Q GDP showed growth grew more than initially expected by 2.1% QOQ, due to upward revision in personal consumption and investment. Growth in personal spending appears to be holding on, with the latest print showing a faster growth of 0.3% MOM in October even as income stagnated. Durable goods rebounded signaling the case of rising business investment while manufacturing activities ticked higher in Chicago. There were also some reprieves from the decline in initial jobless claims but pending home sales bucked the recent positive trend seen in housing data. 

According to Citi Bank month end relative outperformance of equities compared to bonds suggests a rotation from equities to fixed income with a moderately strong signal of +/- 0.6 historic std.dev US and Japanese equities are likely to note outflows while LatAm and Canadian bonds receive the strongest inflow signals. Interestingly, UK and LatAm are set to receive inflows into both equities and bonds. The asset rebalancing flow is likely to be stronger than the hedge rebalancing one and points to USD selling against EUR and GBP at month end

From a technical and trading perspective, the US Dollar Index is approaching some significant potential resistance at the 98.70/99.00 area. As highlighted in the chart, this area represents the monthly resistance pivot, equidistant and symmetry swing potential price reversal zones, combined with the 61.8/78.6% retracement of the October decline. If this area contains the current corrective advance then we may see prices decline through October’s low, en route to test the larger equidistant swing objective sited at 96.45.

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