Markets take a breather as $US corrects
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.
Frequently Asked Questions about this Article…
World markets took a breather after strong directional moves earlier in the week, leading to a quieter session as traders reassessed their positions.
The US Dollar experienced profit-taking, which led to the Australian Dollar breaking out of its downtrend since early October, showing a stronger performance.
The potential monetary stimulus by the ECB on December 3 is significant as it could influence market sentiment towards the US Dollar, especially given the divergence between the Fed and ECB policies.
Industrial commodities are struggling to hold ground despite a weaker US Dollar, which may lead to cautious buying in the mining and energy sectors.
Gold had a strong rally due to the weakening of the US Dollar. This rally appears to be driven by short covering, indicating that the long US Dollar trade might be overcrowded in the short term.
The divergence between the Fed and ECB policies is a key driver for market sentiment, particularly affecting the US Dollar, and investors should watch how this impacts currency and commodity markets.
Investors should be cautious in the mining and energy sectors due to the struggle of industrial commodities to hold ground and the stronger Australian Dollar.
Everyday investors might see quieter market sessions and should be aware of currency fluctuations, particularly between the US Dollar and Australian Dollar, as well as potential impacts from central bank policies.
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