Overnight Headlines

*S&P500 inches north to another new record high, Nasdaq dips

*Dollar slips into the close but regains losses this morning

*US goods trade gap hits record, pending home sales fall

*Gold pulls back to 200-day SMA above $1800, now 5% lower on the year

USD fell into the London fix yesterday as trading houses marked their books to settlement date and the last day of the year on Friday. Prices have regained those losses this morning with the DXY continuing to trade around 96. GBP notably pushed above its 50-day SMA at 1.3422. USD/JPY advanced beyond 115 with the year-to-date high at 115.52 in sight. USD/CAD is tracking sideways around 1.28 and the July top.

US equities were mixed with the blue-chip S&P500 posting another all-time high while the tech-focused Nasdaq fell modestly into the red. The Nikkei recorded its highest year-end closing level since the bubble era of the 1980s, despite posting small losses ahead of a four-day holiday. Thin trading abounds with Europe set for its last trading day of the year, while US markets are open tomorrow.

Market Thoughts – US Treasury yields steal the limelight

Yesterday longer bond yields in the US rose by the most in weeks and to their highest level in more than a month. The widely watched US 10-year Treasury surged through range highs around 1.50% and the 200-day SMA to 1.56%. This had an effect on several areas of the market.

 It pushed USD/JPY above 115 for the first time since just before the Omicron variant outbreak. Gold also traded lower in response to the higher yields. The risk of rising rates remains one of the biggest challenges for the precious metal and one that has led to several banks downgrading their price forecasts.  More yields-sensitive equity megacaps also saw some weakness. Any move towards 1.75% in the 10-year is worth watching in the new year as this will potentially see a broader selloff in stocks.

Chart of the Day – USD/CAD coils around 1.28

Crude oil reached a one-month high on Wednesday after the US EIA reported a fifth straight weekly drop in crude stockpiles. The market believes Omicron will not hamper robust global demand and this should help support CAD in the near-term. So too strengthening risk appetite, though seasonal trends do tend to weigh on the loonie and can spill into the new year.

USD/CAD is ending the year pretty close to where it started (1.2725). Prices failed to hold above 1.29 before Christmas and have been tracking sideways over the last few sessions. If we lose 1.2763, we will likely see a retest of 1.26, while moving above 1.2853 sees a retest of 1.29.