Overnight Headlines

*USD boosted by solid data, new 17-month high at 96.93

*US stocks closed mixed as bond yields pull back

*Gold stabilises around 50,100 and 200-day SMA support

*FOMC Minutes flag faster taper risk

*Thanksgiving holiday means US stock and bond markets closed

USD continued to move higher, trading to the best level since last July. EUR fell to a new low at 1.1186. USD/JPY rose from 114.83 to 115.52, a five-year high. The less hawkish than expected RBNZ caused NZD to underperform. The kiwi fell to near-term September support at 0.6859.

US equities closed a mixed bag again. The S&P500 and Nasdaq finished higher while the Dow posted a small loss. Tech and growth stocks led the way. The broader S&P500 has eyes again on all-time highs at 4743. Asian shares are wobbling this morning. The soaring USD is acting as a headwind for emerging market equities. European and US futures are in the green.

Market Thoughts – Fed hawkish bias

We wrote earlier in the week how Fed officials were changing gear slightly in their approach to price pressures. The minutes of the last Fed meeting revealed lots of discussion about inflation. More members are now moving onto the path of faster tapering as CPI proves more persistent. “Some” participants already wanted a somewhat faster pace – $20bn instead of $15bn.

Increasing the pace of the taper will potentially give the Fed more flexibility to raise rates from the currently near-zero level. The original pace would see asset purchases end by next June. The Fed have historically said they would like some time between tapering and liftoff. Growth of 6-7% in the final quarter means the economy is certainly running hot again.

Chart of the Day – Dollar roaring higher

It’s Thanksgiving and the greenback is most definitely feasting on its peers at present. USD is buoyant on the back of a more hawkish central bank and strong data. This contrasts starkly with the move dovish outlooks in Europe and Japan especially.

Notably, centrists at the Fed like Clarida and even the normally dovish Daly yesterday have said they see a case for speeding up tapering. The economy continues to pick up pace too. Yesterday saw the lowest initial jobless claims in over 50 years. Core capital goods are currently nearly 20% above pre-Covid levels.

The break north in DXY through the October high at 94.56 has been impressive. Long-term levels around 94.65 and the 200-week SMA have been smashed. We are now heading for five straight weeks of gains.

But prices are overbought on several indicators. The RSI is above 70 and the top of the Keltner channel has been pierced. Support sits at last week’s high at 96.24 and big figures like 96. Upside targets include the June 2020 high at 97.80.