Trading in financial markets remained subdued in holiday mood this week. US equities closed mildly lower with DJIA dropped -23.9 pts, or -0.14%, to close at 17528.27. S&P 500 also dropped -4.49%, or 0.22% to close at 2056.5. Asian indices fluctuate in tight range between gain and loss. US two year yield rose to 1.015% to the highest level in more than five years. But both 10 year and 30 year yield closed lower. Gold continues to struggle in tight range around 1070 level. Meanwhile, crude oil is back under much pressure and is trading back at 36.8, after hitting as high as 38.28 last week. Meanwhile, the forex markets are relatively mixed this week. Euro and Kiwi are having some mild gains while Swiss Franc and Loonie are the softest.
The economic calendar continues to be very light today with no event scheduled in Asia and Europe. US trade deficit is expected to widen to USD -60.9b in November. S&P Case-Shiller 20 cities house price is expected to show 5.6% yoy rise in October. Conference Board consumer confidence is expected to rise to 93.9 in December.
Dollar is relatively weak for the month even though Fed delivered the highly anticipated rate hike. Traders remain unsure on their expectation for Fed's rate path in 2016. Currently, markets are pricing in only around 55% chance of another hike by March. Investors would wait for the developments in stock markets in first week of January, and the non-farm payroll report on January 8 before placing the bets.
Looking at the dollar index, it breached 100.39 resistance briefly in November but lacked follow through buying. Considering the price structure and the support from 55 weeks EMA, we're favoring the case that rise from 92.62 is resuming the larger up trend. And another rise with sustained trading above 100 handle will push it to 61.8% projection of 78.90 to 100.39 from 92.62 at 105.90. Selloff in early January would suggest that consolidation pattern from 100.39 is going to extend. But that wouldn't change the bullish outlook and we'd expect strong support around 92.62 to contain downside in that case.
