Markets throw caution to the wind

9 December, 2016

Markets have thrown caution to the wind when it comes to movements as of late as once again US equities set the scene with another stellar rise, though not as big as yesterdays. The main catalyst for this move was the US unemployment claims figures which showed a drop on the previous weeks result to 258K (257K exp). While still slightly above the expected figure it shows that the labour market is still very much alive and kicking in the lead up to Trumps swearing as president and that the market is certainly poised to grow if the infrastructure projects that many expect do in fact go ahead. On top of this financials have also been stronger, as many expect Trumps government to likely cut back on financial regulation in areas to help free up capital for further uses. The long term effects of this will be hard to measure but markets are expecting big things.

The S&P 500 had its maiden touch today as it clipped 2250 before retreating as some traders looked to unwind their positions in the market. I had mentioned yesterday that this would be the psychological barrier that traders would look to play off, the question is now where to from here. I would expect to see the S&P to rally higher, but with 2250 now acting as a strong level of support expect to see some ranging unless we get further Trump news, or an update from the FED. Any further falls are likely to touch on support at 2211 and also the 20 day moving average, which has so far been acting as dynamic support for any rises in the market.

For the Aussie dollar it has been another day of pain as it continues to struggle in the market, and is starting to look like it's consolidating against the USD rather than trending. It was not helped at all today by the recent Australian Trade Balance data coming in at-1.54B (-0.71B exp). This is a reflection of the strong Australian dollar when it comes to commodities which have been feeding the trade balance data for some time. The long term effects of the commodity prices being slightly depressed and not rebounding is likely to be felt on the markets as traders look to punish the AUD. Certainly for the Reserve Bank of Australia this will not be appealing and they may look to cut further in the future, but for now it's likely a wait and see game.

For the AUDUSD resistance at 0.7490 has so far held its grounds, and for the most part I expect and anticipate that we could see further falls on the charts given the strong USD, and the poor economic data we continue to see out of Australia. What will be key is the short term bullish trend line on the daily chart, when this breaks it will give the bears clear control and markets are looking ready to pounce on the opportunity. Looking for a strong level of support it can be found easily at 0.7326 and is likely to hold up against a first attempt to break through.

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