Markets Trade Mixed Amid Thin Liquidity

The US dollar and the Japanese yen underperformed against the other major currencies yesterday and today in Asia, suggesting a risk-on trading environment. However, turning our gaze to the equity world, we see that the majority of indices traded lower. With an empty agenda and thin liquidity, we prefer to not read too much into these moves for now.

USD SLIDES, SOME EQUITIES PULL BACK, OTHERS AIM HIGHER

The US dollar traded lower against all but one of the other major currencies on Wednesday and during the Asian session Thursday. It gained only against JPY, while it underperformed the most versus NZD, GBP, and AUD.

The weakening of the dollar and the yen, combined with the strengthening of the risk-linked Kiwi and Aussie, suggests that markets may have turned to risk-on at some point. Turning our gaze to the equity world, we see that during the EU session, most indices traded in the red. Only UK’s FTSE 100 gained, perhaps trying to catch up the recovery of the other indices, as it was closed since December 24th. In the US, sentiment improved somewhat. Both the Dow Jones and the S&P 500 traded higher, but Nasdaq lost some ground. Appetite was mixed during the Asian session today.

It seems that some investors may have remained concerned over the record increases in COVID cases around the globe, or they may have just kept closing their books for the year. Some others may have decided to continue cheering the fact that the Omicron variant may eventually not lead to full-scale lockdowns. In any case, with a very light economic agenda this week and thin liquidity, due to most participants being on holiday, we prefer once again to not read too much into the moves.

As for our view, we stick to our guns that the latest setback in equities does not constitute a trend reversal, and that there is decent chance for another rebound and new highs, especially in Wall Street. We will not change our view until we see clear and supporting evidence pointing otherwise. However, that doesn’t mean that we will trust a long-lasting recovery with closed eyes. On the contrary, we repeat that we are very reluctant on that font. Although the prospect of a full-scale global lockdown may be off the table for now, if the situation worsens, several nations may tighten restriction after the holidays. Also, with most major central banks being in the process of removing stimulus to counter high inflation, we cannot rule out some decent setbacks in the markets after the turn of the year.

DJIA — TECHNICAL OUTLOOK

The Dow Jones Industrial Average cash index trades slightly higher yesterday, to touch, and perhaps overcome somewhat, its all-time high at 36570, hit back on November 8th. Then, it consolidated slightly below that barrier. Overall, the index has been in a rising mode since December20th, and with no signs of reversal, we believe that we could see further advances, despite the latest slowdown.

A clear and decisive break above 36570 would confirm a forthcoming higher high and take the index into uncharted territory. The next area to consider as a resistance may be the psychological number of 37000, the break of which could carry extensions towards the 37500 zone.

On the downside, a dip below 36210, a support marked by the inside swing high of December 12th, could signal the beginning of a decent correction lower. This could pave the way towards the 36000 or 35875 zones, marked by the inside swing high of December 26th and the low of the day after, the break of which could carry extensions towards the 35550 or 35415 hurdles. If neither is able to stop the fall, then we could see it elongating towards the low of December 21st, at 35040.

AUD/USD — TECHNICAL OUTLOOK

AUD/USD also traded higher yesterday, hitting resistance near the 0.7275 zone, also marked by the high of November 22nd. Overall, the pair remains above the downside resistance line taken from the high of November 2nd, as well as above an upside one drawn from the low of December 3rd. In our view, all this paints a positive short-term picture.

A break above 0.7293, the high of November 18th, would confirm a forthcoming higher high and may allow advances towards the peak of November 15th, at 0.7370. If the bulls are not willing to stop there, then we could see them climbing towards the 0.7470 zone, which provided resistance on November 8th and 9th.

We will abandon the bullish case, if we see a clear dip below 0.7156. The rate will also be below the upside line taken from the low of December 3rd, which may encourage the bears to dive towards the 0.7094 zone. That zone provided strong support between December 14th and 20th. Slightly lower lies the 0.7062 level, marked by the low of November 30th, where another break could see scope for extensions towards the low of December 3rd, at 0.6990.

AS FOR TODAY’S EVENTS

The calendar is once again almost empty, with the only data worth mentioning being the US initial jobless claims for last week, which are expected to have risen to 208k from 205k.

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