Risk aversion continues as we approach the Christmas period, with the dollar still under pressure. The Fed passed up the opportunity to provide the rocket fuel for a Santa Claus rally on Wednesday as it disappointed a dovishly positioned market. There also seems to be little by way of Christmas cheer in Washington as the prospect of a US government shutdown also looms. The reason? Donald Trump wants $500m of spending to “Build The Wall” (the fact that he promised that Mexico would pay for the wall is neither here nor there). The (currently) Republican-heavy House of Representatives have scrambled to agree, but passing it through the Senate will be much more tricky. Equities on Wall Street seem to have just thrown in the towel now as key support levels that had previously held throughout 2018 have now been breached, with markets in full on correction mode (although not yet bear markets). The dollar is also in correction mode, as EUR/USD and USD/JPY both break through key near to medium term levels, whilst gold also continues to climb. Although the Christmas season is all but upon us now and we will be beset by thin markets (potentially highly volatile moves), it is difficult to see the set up for a dollar rally, unless it is an oversold technical driven move.
Wall Street closed decisively lower yet again, with the S&P 500 -1.5% at 2467, with futures showing no appetite for a rebound yet today either. This has again hit sentiment in Asia, with the Nikkei -1.1% and Shanghai Composite -1.1% too. In European markets there is a degree of further slippage on FTSE 100 futures and DAX futures both almost half a percent lower in early moves. In forex, the selling pressure through the dollar continues across the majors, although there is a slight unwinding on the yen which had a huge bull move yesterday. In commodities, gold and silver are consolidating, whilst oil has given a tentative rebound after the latest huge sell-off yesterday.
It is a day predominantly of growth data and inflation on the economic calendar today. First up with a clutch of UK data, with the final reading of Q3 UK GDP at 0930GMT which is expected to come in for a third time of asking at +0.6% (+0.6% in the second reading, +0.4% final Q2). UK Current Account for Q3 is also at 0930GMT and is expected to deteriorate further into deficit with -£21.2bn (from -£20.3bn in Q2). The US data kicks off with final Q3 US GDP at 1330GMT which is expected to be confirmed at an annualised +3.5% (+3.5% Prelim Q3, +4.2% final Q2). US core Durable Goods Orders at 1330GMT are expected to show ex-transport numbers improved by +0.3% in November (+0.2% in October). The US core Personal Consumption Expenditure is at 1500GMT and is expected to show a monthly growth of +0.2% in November whilst this would mean the year on year reading would be +1.9% (+1.8% in October).
Chart of the Day – GBP/AUD
A deterioration in the outlook for the Aussie has come as sterling has managed to stabilise in the past week, which has added up to a recovery on Sterling/Aussie. The recovery now means that GBP/AUD is at a key crossroads. Since July there has been a key pivot at 1.7815 which has since become the neckline for a prospective head and shoulders base pattern. There is a decisive improvement in momentum which continues which is seen through the MACD line accelerating higher, RSI rising above 50 and Stochastics rising into strong configuration. There is though an added barrier to gains where the 38.2% Fibonacci retracement of 1.8732/1.7204 at 1.7788 which could also mark a basis of consolidation that