Overnight Headlines

*USD backs off highs, JPY jumps as sentiment soured

*US stocks closed in the red, Dow -0.58%

*Oil skidded to a six-week low on concern about supply overhang

*Gold rose nearly 1% and is consolidating near recent highs at $1877

USD sold off after making fresh highs at 96.24. The DXY is currently trading just above support at 95.71. Prices are beyond the upper Keltner band. The daily RSI is also still in overbought territory. JPY had its sharpest one-day jump versus USD in three months. EUR recovered from a move below 1.13 and a fresh low at 1.1263. The risk-sensitive AUD fell to a six-week low.

US equities closed mixed with sentiment muted. Inflation fears and supply chain concerns continue to linger. Giant US retailers, Walmart and Target, both flagged a hit to Q3 margins from supply chain issues. Visa also weighed on the Dow after Amazon said it would stop accepting its cards in the UK. Asia is continuing in this mood with Hong Kong dragged down by heavyweight Alibaba. Futures are modestly in the green to start the day.

Market Thoughts – FX moves pause

Technicals will guide trading today in the absence of meaningful economic data. We’ve had some serious moves in the FX space after a few weeks of sideways trade. Bond yields are one reason with the bumper US inflation print propelling US 10-year treasuries to three-week highs.

EUR support at 1.1291 has held for now. This corresponds with the trade weighted DXY move north of 96 falling back. The single currency is set for its worst month since June. JPY mirrored the fall in yields with USD/JPY erasing all the retail sales surge from 114 to 115, and back. Consolidation after such major moves is healthy. The weekly closes will be key, as well as watching the longer-term trends.

Chart of the Day – Oil breaks down below recent support

Concerns about a supply overhang have hit oil markets. The prospect of China, Japan and the US dipping into their fuel reserves has pushed prices below support. The potential fourth Covid wave in Europe and hit to demand is also weighing.

Brent is currently trading off more than 8% from last month’s three-year highs at $86.68. Prices traded around a Fib level (78.6%) at $81.99 recently. But the November low at $80.22 has been broken this morning with prices falling below $80. Next support is the 61.8% Fib mark at $78.31.