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The next chapter of the Federal Reserve comes into focus this week with Jerome Powell’s confirmation hearing in front of the Senate Banking Committee on Tuesday. The Dollar Index has been under pressure since Wednesday’s FOMC Minutes. Despite a December hike expected, the take away from last week was a very gradual pace of raising rates moving forward. This will be the first time that we get insight into how Powell plans on running the Fed and the Dollar trade will be in our crosshairs. Current Fed Chair Yellen follows him on Wednesday and testifies before congress on the state of the U.S economy. If we get more of the same from the two of them, weakness in the Dollar could have just started.
The all-awaited OPEC meeting is this Thursday and Crude Oil is trading at the highest level in two years. Traders have piled into Crude, front-running the expected extension of production cuts. The wild card remains Russia, but they did say on Friday that they are in support of an extension. By all means, if no extension is reached on Thursday, Crude will sell off quickly. We have been very bullish ahead of this meeting and believe that this is shaping up to be a ‘buy the rumor, sell the fact’ event. The Commitment of Traders is due out on Monday because of the holiday. Last week’s read showed the largest net-long position since February. We believe this position has continued to expand, but if everyone has already bought, we will need more bullish news out of this meeting to attract fresh buying. We will look for an opportunity to position short this week.
On Thursday we get the October PCE Price Index read. Lagging inflation is working to slow down the pace at which the Fed looks to hike rates next year. Janet Yellen’s comments last week and Wednesday’s FOMC Minutes expressed a growing concern that rate hikes have directly halted inflation. Furthermore, we began to see a tectonic shift in central bank expectations this spring; the Fed is now not the only central bank tightening policy. Also on Thursday is CPI data out of the Eurozone. These dueling reads should already add to a volatile Euro-USD trade.
The S&P finished the week at a new all-time high. With strong Black Friday sales as well as expectations for Cyber Monday coupled with accommodative central bank policy and likeliness of tax-reform the Santa Clause rally could have already begun. Some could argue that last year’s Santa Clause rally still hasn’t stopped. With the S&P settling the week above resistance at 2594.50-2596 this opens the door to our next upside target of 2633.
For the second week in a row, we must wait until Monday to see the latest CoT report. It is important to remember that the report only takes in data through Tuesday. Despite the delay, we watch this report very closely as it helps dictate our trade ideas. Right now, we are watching the positioning on Crude Oil, Japanese Yen and Corn the most closely.
The November Manufacturing PMI read is due out Wednesday evening. Last week was a volatile one for major Chinese indices and their 10-year treasury retreated below 4% on Friday but remains at the highest level in almost four years. We will be watching the base metals closely on this number. In particular, Palladium which has been trading at the highest level since the first quarter of 2001. Price action in Palladium rejected $1000 once again on Friday. A miss for the second month in a row on Chinese Manufacturing could begin to put some pressure on the base metal camp.
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