This week started on the same note like the previous one ended: with the US equity markets at record highs. Monday’s closing saw all US indexes into the all-time high territory, and this tells much about how markets embraced the US presidential election.
This rally already has a name: the Trump rally and bears are being cornered on such an aggressive move. The funny thing is that the US dollar is running higher as well, and this is something that was supposed to happen the other way around.
When stocks in the United States are moving higher, the normal correlation is that the US dollar is moving lower. However, this is not a one hundred percent correlation. Nevertheless, they should not move in the same direction.
And yet, the dollar is moving higher. So much higher, that it is sitting at multi-years highs with the Federal Reserve of the United States poised to hike rates in December too. Will this lead to an ever higher US dollar? Hard to tell, but for now the market seems to trash bears as everyone is afraid of shorting the dollar.
The economic releases are light this week in the sense that it is the Thanksgiving week and many North American traders are taking a short week. That being said, look for volatility to be on the downside as well.
GBP traders should be alert as on Wednesday there is a potential for the pound to move as the Autumn Forecast Statement is due. While normally it shouldn’t be that important to markets, this time, with Brexit and all, it may be a different story.
The USDCAD traders are waiting for the much-anticipated OPEC decision at the end of the month to see if an agreement to freeze production levels is reached. Until then, there’s little chance that the CAD pairs will move much.
The one currency that traveled aggressively lately was the JPY as it is correlated with the moves that are forming in the equity markets. That being said, the USDJPY, GBPJPY and other JPY related pairs enjoyed nice rallies together with the US equities. The important question now is how long these moves will last and is this a good place to buy the JPY?
All in all, look for main trends to still hold until the end of this week as equities are still on a verge to make new and new highs. This is not the time, nor the place to fade the move.
FOMC minutes on Wednesday are the only market-moving piece of information that matters this week, so look for the US dollar to react accordingly.