As I look back on the week – and it’s been an amazing one – here’s the view.
Whether the FOMC hikes in December or not makes the next Non-Farm Payroll, Unemployment Data, and CPI releases major market movers.
We’ll be back on the will-they-or-won’t-they rollercoaster as data will determine how heavily and quickly the market discounts a hike (again). Equities traders get a reprieve for a bit (remember what Boston Fed President Eric Rosengren did to the market?) and the U.S. Dollar Index will remain heavy until 95.00 where it could nudge some buyers awake (again).
The #1 way to see the broadest opinion about the U.S. dollar is through the EUR/USD.
The EUR/USD is saying it does have an opinion right now. As it climbs it says the U.S. dollar weakness is not done.
The daily EUR/USD was a fade buy in front of the FOMC. The target of 1.1245 has already been hit so now it’s just a matter of a trailing stop to see how high is high.
The overall sideways chop says it has no idea what the FOMC is going to do. Without that outlook, the U.S. dollar can’t quite sell-off because what if the FOMC DOES hike in December? The dollar can’t rally too much higher either because what if they don’t…
Why did the Australian dollar emerge as a strength story this week?
One of my more recent entries is the AUD/USD. The aussie is strong right now and partially it’s the U.S. dollar weakness allowing it to rally. But of all the currencies with strong relative performance versus the U.S. dollar, why the aussie?
The carry trade that benefited the NZD for so long seems to be migrating to the AUD since expectations rose this week for the RBNZ to cut rates in November.
There’s a good chance it’s really a matter of other central banks on hold (BOJ, FOMC, RBNZ) and the expectation that the Reserve Bank of Australia will not be easing.
OPEC is behaving more like a central bank now than an oil cartel.
And you could argue they are occasionally doing a better job than most central banks. Led by the most vocal of oil interests, Saudi Arabia and Russia, this next OPEC meeting is no different than the central bank events I’ve traded this week.
Oil has been in the nastiest of chops. This market has been best traded session-to-session more as a daytrader than on longer-term time frames.
There are a few obstacles in the way of a production freeze. Iran is not the 4 million barrel per day output they want to be before a freeze. Other OPEC and non-OPEC countries may not be so happy about Putin’s recommendation of giving Iran an exemption to a freeze.
Libya did finally get the oil exporting kick-started with a shipment of 770,000 barrels on its way to Italy from the Ras Lanuf port – the same port that caused the oil rally this week when the export was threatened. Libya’s goal is 900,000 barrels per day by the end of 2016. They’re at 390,000. Libya’s fragile new government is reliant on this production. Freeze? I don’t think so.
What does this mean? More chop friends, more chop. And the charts don’t say otherwise either. Fade the range extremes or daytrade this market.