The S&P 500 index extended its eight-day gains to a record high of 2,552 points, reflecting investor confidence over third-quarter earnings after the release of a string of positive economic data recently. 

The US dollar surged against its major peers last night, with the US dollar index December contracts hitting their highest level in three months. US non-farm payrolls data is likely to dominate market sentiment in both equity and forex market tonight. Thomson Reuters’ consensus forecast suggests some 90k new jobs added this month, a fairly conservative estimate after taking into consideration the damage caused by Hurricanes Harvey and Irma. The forecast is far below the reading of 156k last month. 

However, even sour numbers would be unlikely to change the picture around a December rate hike, the likelihood of which has already climbed to 88% according to the CME’s FedWatch tool. Several Fed officers have expressed consensus regarding another rate hike in December, and thus strengthened the outlook of further monetary tightening by the end of the year. 

Technically, the US dollar index has formed a ‘reverse head-and-shoulders’ pattern after months’ of declines, suggesting the likelihood of the trend reversing. The strong dollar is partially due to weakness in the sterling, which fell sharply due to rising political uncertainty surrounding Theresa May’s leadership. This turmoil arrives at a critical time for Brexit negotiations, and will complicate the outlook for future talks. 

Asian equity markets are positioned to open higher today following a positive US and European session last night. The Hang Seng Index has rallied over 800 points in the last two trading sessions, driven by the PBOC’s unexpected announcement of a targeted Reserve Requirement Ratio (RRR) cut last Saturday. Moderate monetary stimulus is expected to dominate shares movement – in particular the banking and finance sector – in the days to come. 

Technical Analysis:

US Dollar Index Dec 2017

  • A ‘reverse head-and-shoulders’ pattern has formed, which usually suggests trends reversing
  • 10-Day Simple Moving Average is sloped upwards, suggesting the upward trend intact
  • Momentum indicator RSI is approaching the overbought level of 70%

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