As Thanksgiving arrives, it will mean many traders in the US taking time out. Thin markets, low volumes, low liquidity and usually either dead markets or huge volatility results. In the absence of newsflow, this can mean a sleepy time for markets, however, focus will remain on the political wranglings of Brexit and the Italian budget. Unless any real ground is given by the Italian government then the “excessive debt procedure” looks set to be initiated. For now, it looks as though the renewed dollar strength that had threatened following Tuesday’s risk retreat has failed to ignite. Treasury yields did not run rampantly higher as a run of US data disappointed (Durable Goods, Weekly Jobless Claims and final Michigan Sentiment all negative surprises). Ceteris paribus (as economists love to say) this should mean the dollar bulls will struggle for traction in the coming days and markets be relatively stable. However, with Theresa May meeting EU officials amid concerns that their deal is dead in the water, the prospect for a surprise is high. Also any drip feeds of newsflow over whether the Italian government will compromise over its spending plans will also need to be watched. Thin markets have a tendency to do funny things, so staying close to the newswires is important.
A late sell-off on Wall Street saw almost all the early gains given back as the Dow closed almost dead flat and the S&P 500 was +0.3% at 2650. US futures are a shade higher but Asian markets have been mixed overnight with the Nikkei +0.7% and Shanghai Composite -0.2%. European futures are marginally higher in early moves. In forex, there is little real move on the dollar, with the euro and sterling a shade higher, whilst the Aussie and Kiwi are slightly underperforming. In commodities, with a lack of dollar direction, gold is almost flat, whilst oil is a shade lower.
With the US on holiday for Thanksgiving today it could be something of a muted session and this will not be helped by a minimal economic calendar. The release of the ECB monetary policy meeting accounts (i.e. its minutes) from the October meeting of the Governing Council at 1230GMT and the market will be looking out for comments surrounding a prospective slowing of Eurozone economic activity and inflation trends, along with the prospects of ending the asset purchase programme in December. There is also the Eurozone Consumer Confidence to consider at 1500GMT which is expected to show a further slip to -3.0 from -2.7 last month which would be an 18 month low.
Chart of the Day – EUR/CAD
The euro has been looking far more positive in recent sessions whilst it is interesting that the Canadian dollar has struggled (something to do with a bear market in oil perhaps?). This has driven a strong recovery in EUR/CAD in the past week and a move which is now at a crossroads for a potential key upside breakout. The resistance of the October high at 1.5135 was breached intraday yesterday only for a corrective move back and negative candle. That the high came at 1.5170 which was at the considerable resistance of a five month downtrend and the falling 144 day moving average which has been a consistent barrier since June shows how the market sees this as a crossroads. A breach of the downtrend and a positive candle formed today would be a significant positive development. There is a band of to watch between 1.5050/1.5135 which has been near term breakouts. There is a strengthening of momentum indicators, with the MACD lines rising above neutral once more, the Stochastics strongly configured and the RSI above 60. If these momentum conditions can hold then the bulls will be well positioned to break the confluence of the trend 1.5135, trendline and 144 day ma resistance. This would then open a test of the September highs of 1.5325/1.5370. A close below 1.5050 would now be a disappointment.