USD Rally Risks to run out of Steam on Lack of Bullish Catalysts
The Fed is more and more inclined to complete the QEsooner. This is the key takeaway of the minutes of the last FOMC meeting, releasedon Wednesday. Judging by the dollar rally towards 96.50 before the Minutes’release, the markets anticipated this outcome and, in fact, were not mistaken.The minutes showed that the Fed is seriously alarmed by the threat ofstagflation - a combination of low rate of real output and high nominal outputrate (i.e. increased inflation). If inflation is not contained, it will onlyexacerbate the negative dynamics, therefore, as much as one would not want to,the markets may have to prepare for faster rate hikes and QE tapering.
The publication of the protocol allowed the US currencyto challenge 97 level in DXY (USD currency index). Today the dollar index wentinto moderate correction. Information regarding the Fed policy (FOMC meeting, Minutes,inflation reports) has already been priced in asset prices, so it is difficultto determine what could be the next catalyst for a new rally in the dollar.Also, December is coming up - a seasonally negative month for the dollar. Itfollows from this that the DXY may go into consolidation or even decline, atouch of 97 level in DXY is possible with a false breakout, but most likely itwon’t be able to gain foothold above:
The oil market has received some certainty onadditional supply due to release of strategic reserves in a number of largeeconomies, however, OPEC's response to the fact that some key consumers aretrying to change the balance of supply and demand in the market remainsuncertain. The OPEC+ meeting will be held on December 2 at which the members ofthe pact will decide whether to increase production by another 400 thousandbarrels. Given market fears that a new wave of covid in Europe is underminingthe demand forecast, oil may decline ahead of the OPEC meeting in the expectationthat the cartel will stick to the strategy and will not respond to demandrisks. Earlier, the OPEC economic commission warned that global oil marketcould face a surplus of oil, especially early next year.
The current recovery in oil quotes, taking into accountupcoming negative news background, can be considered as a bullish pullback withinthe downtrend:
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