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Relentless USD rally weighs on stocks and currencies as the weekend approaches

The USD continues‎ its big post-election drive higher with traders pricing a December interest rate hike followed by expectations of more increases in 2017.

These gains are starting to present a problem for stock traders. Markets have priced in expectations of significant fiscal stimulus from a Trump administration. The problem is that the new US government doesn't take over until January and it takes time for new policies and programs to be implemented so it could be a year before the benefits show up in earnings. Meanwhile, the negative impact of a higher dollar on exports, travel and earnings may hit a lot sooner similar to what we saw a year ago when the US Dollar Index last went over 100 ahead of the December 2015 interest rate increase.

This headwind is starting to impact US indices with the S&P struggling to clear 2,190 to reach new highs and the Dow struggling with 19,000. Today US index futures and the Dax are trading down ‎0.1% while the FTSE is down 0.5%. Italy's FTSEMIB is down 1.6% on concerns of rising political risk heading toward the December 4 Italian referendum where the Euroskeptics are leading and which could lead to PM Renzi's resignation if he loses. Asia Pacific indices fared a bit better with the Nikkei up 0.6% on the back of a weaker Yen while the Hang Seng and Australia rose 0.4%.

The higher Dollar also continues to drag on other markets. Bonds, gold and JPY all continue to be impacted by capital leaving defensive havens. EUR continues to slide relative to USD and GBP on concerns about its struggling economy. President Obama's call for Greek debt relief fell on deaf ears in Germany. 

The continued refusal by EU leaders to provide real solutions to problems and refusal to provide hope to struggling citizens shows how the Euro project is failing. This could fuel more drives for change building on the populist momentum from this year’s Brexit and Trump victories against the establishment heading toward key referendums and elections in Italy, Austria, Netherlands, France and Germany over the next year. Apparently we may hear soon if German Chancellor Merkel plans to run for a fourth term in office.

The biggest thing traders need to watch out for is that some market moves can look unstoppable until the suddenly stop and then swiftly correct in the other direction. For example, a week ago copper started Friday morning screaming higher then suddenly the bottom fell out as traders started to take profits only to find out that the buyers had all piled in already and there was nobody left to sell to until prices came down significantly. 

The big move straight up in USD increases the potential for a significant downward correction‎ that could spark moves across a number of markets, particularly those that have been really beaten down lately. A year ago, the USD Dollar index peaked in early December about a week before the Fed rate hike meeting. There are a number of Fed speakers on again today but profit taking could play a larger role either ahead of this weekend or early next week ahead of the US Thanksgiving holiday.

Corporate News

There have been no major corporate announcements this morning. 

Economic News

Germany producer prices        street (0.9%) vs previous (1.4%)

NZ ANZ consumer confidence        previous 122.9

Upcoming significant economic announcements include:

8:30 am EST        Canada consumer prices        street 1.5% vs previous 1.3%
8:30 am EST        Canada core CPI            street 1.8%

5:30 am EST        FOMC Bullard speaking
9:30 am EST        FOMC George speaking
9:30 am EST        FOMC Dudley speaking
1:30 pm EST        FOMC Kaplan speaking
9:45 pm EST        FOMC Powell speaking

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