We realize that it's the holiday season and markets are thin, but they sure are interesting. Full of complexities. Or is it contradictions? As Bloomberg's Richard Breslow notes, so many assets, economic story lines and geopolitical risks can go either way. Yet traders seem to be set on their current leaps of faith and happy to ignore the rest as next year’s problem.
Despite all the debatable points there’s a remarkable, some would argue reckless, amount of confidence being espoused. People are sure that things are setting up quite clearly for us to be about to enter the year of the [fill in the blank]. How we close this year will have a lot of influence on market psychology as positions are rebuilt and P/Ls started anew come January.
One favorite, no surprise, is the dollar is the place to be. Rates, safe haven, fiscal stimulus. USD/JPY is motoring and EUR/USD will have to test lower. Yet the minds of traders work in mysterious ways.
Monday we made a multi-month high in USD/JPY and then had a sloppy close. Failure came the screams. Mostly from people who don’t have the trade. A month of fundamental analysis went out the window. Until the pair re-took 115 Tuesday. Sloppy closes should be a chapter heading when they write the history of this year and are not as informative as they were in the past.
For now, the dollar index is between 100.50 and 102. Trade away in-between. Declaim outside.
Treasury yields are certain to move resolutely higher. Follow the 10-year. New year excitement comes if we get out of 2.5%-2.3% range. Nice pivot in-between. Yesterday’s auction was not very good, even though the market was bid. Failure of the break-out? Not necessarily. More likely just a sloppy close.
West Texas is easy. The pivot is $50. Just remember with these production cuts, you can trust but had better verify.
Equities will be equities for the window-dressing and high water mark season. But if you want to watch for a tell going forward, follow the Shanghai composite as it flirts around its most excellent 55-day moving average. It’s back in play as of today.
Investors seem to have once again managed to fool themselves that geopolitics won’t matter. Be very careful with this one. Not every problem can be solved with monetary policy. And the response to every tweet won’t always be an editorial.
via http://ift.tt/2gEfqv1 Tyler Durden