The markets continue to seem optimistic. The strength of the US flash PMI offered a contrast of most high-income regions. Major the S&P 500 and the Dow Jones Stoxx 600 advanced last week after falling the previous week for the first time since early October. Benchmark 10-year bond yields were mixed. Asia Pacific experienced small declines, as did the core in Europe. The periphery of Europe and the US saw modest increases. On the month, the backing up the peripheral yields was striking. Italy led the way with a 30 bp increase. Spain rose by about 18 bp.
Even after Trump signed the bills ostensibly to protect Hong Kong and the subsequent threats by China, many still see a trade deal in the making as both sides seem to want it. Expectations have been scaled back in terms of substance. Some think an announcement is possible as early as the coming days. The market already appears to be pricing in the end to the escalation of the tariff battle. The key to the response could be the extent of the roll-back. There is some hope after last week's unscheduled talks between the US, Canada, and Mexico that the US House of Representatives could signal the intention of bringing the USMCA to a vote. This would likely mean that the Democratic leadership thinks it has the vote to approve it.
The US dollar was mixed, but the underlying tone remains firm. It finished last week near key levels against the yen (JPY109.50), euro ($1.10), and Swiss franc (CHF1.0030). Sterling remains supported by speculation that the Tories can secure a parliamentary majority at the December 12 election. The Australian dollar bled lower and has fallen for four consecutive weeks. Dragged down, especially by Latin America, the JP Morgan Emerging Market Currency Index fell nearly 0.4% last week, its fifth straight weekly decline.
Dollar Index: The Dollar Index reached its highest level (~98.55) since mid-October before reversing lower in the waning hours of the last session of November. Thin markets and month-end considerations may have exaggerated the decline. It nearly wiped out the week's gains, leaving the Dollar Index three-thousandths of an index point higher on the week. Initial support is seen near 98.00, and a break of the 97.70 area would warn that of a corrective phase rather than just consolidation. On the other hand, a move above 98.70 would signal a test on the October 1 high around 99.50. The Slow Stochastics did not confirm last week's high, though the MACD continues to trend higher. The Dollar Index gained a little less than 1% in November, after losing 2% in October.
Euro: The single currency posted a potential reversal ahead of the weekend by making new low since October 10 (~$1.0980) before rallying through the previous session high, a little below $1.1020), and closing near the highs. In candlestick terms, it may be a bullish hammer. However, thin markets and month-end flows caution against reading too much into it. News of the change in SPD leadership has increased the risk that the German government falls, but on balance, it seems more likely to renegotiate the terms of the coalition. The party will take a formal vote at the end of next week. For the week, the euro finished three-hundredths of a cent lower and 1.2% weaker on the month. It fell by 2.3% in October. The euro has not been above $1.1030 since November 25. The month's downtrend line starts December near $1.1060. The MACD and Slow Stochastics are above where they were in the middle of the month, not yet confirming last week's low.
Yen: The dollar's six-session streak against the yen, the longest of the year, ended while US markets were closed for America's Thanksgiving. It made new six-month highs before the weekend (~JPY109.65) before coming off (~JPY109.40). The dollar finished two-hundredths of a yen lower on the session and three-quarters of a percent higher on the week. The greenback rose 1.35% against the yen in November. The MACD and Slow Stochastics give no reason not to look for a further advance with JPY110.00 being the next important chart point. The cautionary note comes from the upper Bollinger Band, which begins the new week near JPY109.60.
Sterling: The British pound gained 0.7% last week, completely recouping the 0.5% lost the previous week. It was virtually flat in November, losing 17/100 of a penny after gaining 5.3% in October. Since the middle of October, it has chopped between $1.28 and $1.30. Sterling recorded an outside up day in the middle of the last week but did not signal a break of the range. Many investors appear to be confident that the Tories will win the December 12 election and that the UK will leave the EU by the end of January. The broad sideways movement has neutered the momentum indicators. After the election is out of the way, investors' attention may turn to the economy, which is weakening.
Canadian Dollar: The US dollar spent last week within 20-25 pips of CAD1.3300. Neither the end of the rail strike in Canada nor the optimism about the USMCA had much impact. The technical indicators suggest the next move will be a weaker greenback. The MACDs have flatlined near its highs, and the Slow Stochastics are rolling over. The US dollar rose almost 1% in November after falling by about 1% in the previous two months. Initial support is seen near CAD1.3250. The Bank of Canada is widely expected to restate its neutrality after its policymaking meeting on December 4. However, the jobs data a couple days may help investors locate the bar to a cut.
Australian Dollar: The Australian dollar could not distance itself from the $0.6770 support area. It fell (0.35%) to extend its losing streak to the fourth consecutive week. The price action and the technical indicators give little reasons to think that low is in place, though the Slow Stochastics is overextended. A test on the lower Bollinger Band still allows lower levels (~$0.6735). The early August and October lows were set near $0.6670 and are increasingly coming into view.
Mexican Peso: The US dollar rose against the Mexican peso for the fourth week in the past five. Its 0.8% rise last week accounted for half of its gain (~1.55%) for November. The momentum indicators suggest there is scope for more gains. A convincing break of the MXN19.64 area, which was flirted with last week and houses the upper Bollinger Band, would complete a potential rounded bottom. It projects toward MXN20.20, though the October high around MXN19.86 may be the first hurdle. The peso partly serves as the liquid accessible proxy for emerging markets, and now Latam currencies. Brazil and Chile's central banks intervened last week to support their currencies. Those two and the Colombian peso were suffered the largest losses among emerging market currencies. Initial dollar support is seen near MXN19.40.
Chinese Yuan: The dollar drifted lower against the Chinese yuan last week, posting losses (of less than 0.1%) in four of the five sessions. For the entire month of November, the dollar was barely changed. Even after Trump signed the Hong Kong bills, volatility did not rise, and the yuan did not weaken. The dollar has traded in CNY7.00-CNY7.05 range over the past couple of weeks. The stronger than expected official PMI may be more of an equity than a currency story. The Shanghai Composite rallied earlier this year, but November was the third consecutive monthly decline. While the losses have been modest (1.2% of this run) in stands, in contrast, most other markets. The MSCI Emerging Market equities index slipped about 0.2% in November, but over the past three months is up about 5.5%.
Gold: Gold edged about $2 an ounce higher last week. Support around $1450 has been tested several times, and although the downside momentum has been exhausted, the has been little interest in the upside. A move now above $1468-$1470 could spur some technical buying. The $1480 area corresponds to the neckline of a potential double bottom, which would project toward $1510. The MACD has flatlined in oversold territory. The Slow Stochastics are curling up from higher levels.
Oil: Thin markets may have exacerbated the drop in crude prices before the weekend. The little more than 5% decline was the largest in two months. The unexpected rise in the US inventories did not help matters, but it seemed to have been the Saudi's complaint on the eve of next week's OPEC+ meeting that sent prices reeling. Saudi Arabia indicated its frustration of bearing the cost of supply cuts. This may be a negotiating ploy. Even as prices climbed over the last couple of weeks, we have read the technical indicators as favoring caution. The MACD and Slow Stochastics continue to gradually rollover. A break of the $54.70 area could signal another dollar decline before stronger support is found.
US Rates: The US 10-year yield traded in about a 6.5-bp range last week (~1.73%-1.795%). It was the narrowest range in at least six months. The yield rose by 8.5 bp last month. It was the third monthly increase. The momentum indicators of the December note futures contract favors the downside of prices, warning of the risk of yields may test the recent highs a little below 2%. The US yield curve (2y-10y) looks poised to re-steepen. It peaked near the middle of November near 27 bp and fell a little below 15 bp by late in the month.
S&P 500: The S&P 500 rose about 1% last week, despite the 0.4% decline before the weekend, to bring the monthly advance to 3.4%. The small gap created by the higher opening at midweek was closed after Thursday's Thanksgiving holiday. We continue to suspect the market is getting ahead of itself and still see the momentum indicators as stretched. The S&P 500 gapped higher to start the week and that gap (~3112.9-3117.8). Filling that gap would require taking out the two-month uptrend line (~3125 on December 2).