Dollar Stays Weak, Equities Mixed on Big Week Ahead

Market Drivers December 1, 2020

  • Equities rally further
  • Euro eyes 1.2000
  • Nikkei 1.34% Dax 0.82%
  • UST 10Y 0.85
  • Oil $45
  • Gold $1797/oz.
  • BTCUSD $19755/oz.

Asia and the EU

  • EUR Markit PMI 53.8
  • EUR CPi -0.3%
  • GBP UK Markit PMI 55.6

North America Open

  • CAD GDP 8:30
  • USD ISM Manufacturing 10:00

Markets were in an upbeat mood on the second trading day of the week with stock index futures inching toward record highs as investors remained optimistic about the COVID vaccine approval and rollout and the prospect of supportive monetary policy.

ECB executive board member Isabel Schnabel noted that ECB may consider a longer duration for TLTRO rate and possibly extend the PEPP program as a response to the second wave of COVID that has hit Europe.

In short the central bank is signaling that it stands ready to maintain its very accommodative monetary policy for as long as needed in order to support the economies in the region which continue to suffer from the economic effects caused by the virus.

On the eco front the final reading of EU PMI Manufacturing data came in at 53.8 slightly better than 53.6 eyed and above the 50 boom/bust line. German unemployment also recovered with rate dipping to 6.1% versus 6.3% forecast as rolls were reduced by 39K.

The risk on mood and the supportive comments from the ECB helped push the EURUSD to 1.1970 as the pair eyes the psychologically key 1.2000 level. The euro strength has been a surprise for the market given the eco shock on COVID, but the price action in the pair is very likely being driven more by broad dollar weakness rather than any organic demand. With US real rates now at nearly -2% as Fed continues its accommodative policy the dollar weakness has been across the board and as long as risk on flows remain it will likely continue to drift lower.

On the docket today the market will get a glimpse of the ISM Manufacturing data which is forecast to print at 51.4 but any upside could spur even further risk on flows with investors anticipating a bigger recovery off an already resilient base. Today, the market will see testimony from Chair Powell who will most likely advocate for further fiscal stimulus in order to revive the economy, but is unlikely to offer any new ideas and therefore his words may not be market moving.

For now the positive mood reigns in the markets and any attempts at profit taking have been met with strong buy the dip flows. If equities push to all time highs and close there, the momentum is likely to continue.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Boris Schlossberg

Mr. Schlossberg is a regular contributor to CNBC's Squawk Box and a commentator for CNBC Asia and CNBC Europe. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Mr. Schlossberg has written for SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is the author of Technical Analysis of the Currency Market and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game, both of which are published by Wiley

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