After strong directional moves this week it was not surprising to see world markets take a breather last night. The Australian stock market looks very likely to follow this lead with a relatively quiet Friday session in prospect.
Profit taking was most evident in the US Dollar as traders took risk off the table following strong gains. This led to the Aussie Dollar’s emphatic break out of the down trend that has seen it drift lower since early October. The big issue for currency markets now is whether and to what extent the ECB will add monetary stimulus on December 3. The extent of divergence between the Fed and ECB looms as a key driver for market sentiment towards the US Dollar.
Industrial commodities struggled to hold ground overnight despite a weaker $US. This together, with the stronger $A may lead to buyer caution on the mining and energy sectors today.
Gold which is not subject to the supply overhang impacting some of the industrial metals had a strong rally as the US Dollar weakened. The strength of gold’s overnight rally in response the US Dollar weakness has the appearance of short covering and indicates that the long US Dollar trade has become a little crowded in the short term.