The US dollar rocketed higher upon the release of the US non-farm payroll (NFP) report on December 4, which surprisingly showed that the labor market only lost 11,000 jobs in November, compared to forecasts for a decline of 125,000. Furthermore, this was the best reading since December 2007, when the US gained 120,000 jobs, suggesting the labor markets may be nearing a turning point. There’s no doubt that this was positive news, including the drop in the unemployment rate from 10.2 percent to 10.0 percent.
Going forward, though, it’s necessary to keep in mind that with 10 percent of the population unemployed (or 17.2 percent if you count marginally attached workers and those employed part time for economic reasons), there still isn’t as much impetus to fuel consumption growth as there has been over the past 26 years, especially when taking tighter credit conditions into account, suggesting that any economic expansion that occurs going forward may be mild from a historical perspective.
From a technical perspective, the DXY index closed Friday just above the 50 SMA and falling trendline resistance, both of which have been capping prices since July. This may ultimately indicate a change in trend for the US dollar, but uncertainty lies in the fact that closing prices were just barely above the noted resistance points. Furthermore, the currency’s move was fundamentally driven, but we’ve seen in the past that the currency often goes back to trading as a “safe haven” asset the following trading week.
Looking ahead to event risk in the coming week, additional signs of percolating consumption may hit the wires. On Friday, the Commerce Department is forecasted to report that US retail sales rose 0.6 percent in November, after rising 1.4 percent in October on the back of auto sales. Likewise, the retail sales index excluding autos is projected to increase by 0.5 percent, but looking at the International Council of Shopping Centers report, the results could be disappointing. The ICSC index showed that same store sales fell 0.3 percent in November from a year earlier, led by apparel and department store sales. However, with sales of jewelry and electronics reportedly up sharply to mark the start of the holiday shopping season on Black Friday, the upcoming advance retail sales report could reflect rising consumption trends through the end of the year. If the US dollar returns to trading in line with risk trends, positive results could actually weigh on the currency.
Going forward, though, it’s necessary to keep in mind that with 10 percent of the population unemployed (or 17.2 percent if you count marginally attached workers and those employed part time for economic reasons), there still isn’t as much impetus to fuel consumption growth as there has been over the past 26 years, especially when taking tighter credit conditions into account, suggesting that any economic expansion that occurs going forward may be mild from a historical perspective.
From a technical perspective, the DXY index closed Friday just above the 50 SMA and falling trendline resistance, both of which have been capping prices since July. This may ultimately indicate a change in trend for the US dollar, but uncertainty lies in the fact that closing prices were just barely above the noted resistance points. Furthermore, the currency’s move was fundamentally driven, but we’ve seen in the past that the currency often goes back to trading as a “safe haven” asset the following trading week.
Looking ahead to event risk in the coming week, additional signs of percolating consumption may hit the wires. On Friday, the Commerce Department is forecasted to report that US retail sales rose 0.6 percent in November, after rising 1.4 percent in October on the back of auto sales. Likewise, the retail sales index excluding autos is projected to increase by 0.5 percent, but looking at the International Council of Shopping Centers report, the results could be disappointing. The ICSC index showed that same store sales fell 0.3 percent in November from a year earlier, led by apparel and department store sales. However, with sales of jewelry and electronics reportedly up sharply to mark the start of the holiday shopping season on Black Friday, the upcoming advance retail sales report could reflect rising consumption trends through the end of the year. If the US dollar returns to trading in line with risk trends, positive results could actually weigh on the currency.
Commodities - Metals
Gold Tests $1,200 as Dubai Credit Fears Ease and the Dollar Slumps
Spot Gold - $1,196.60 // $17.00 // 1.44%
Gold rallied to a new record high and briefly pushed above even $1,200 level through Tuesday’s active session. Overtaking last week’s swing high of $1,195, the commodity has proven its buoyancy can survive all but the most certain reversals in underlying risk appetite. And, taking measure of the fundamental impressions on the precious metal over the previous session; there was little doubt that sentiment was the primary driver for spot. Progress on the Dubai World default story took a significant weight off gold bugs’ shoulders. With officials reporting “constructive” negotiations towards restructuring the $26 billion in underperforming liabilities, a global credit shock due to a sovereign debt failure seems to have been averted. Adding fuel to the fire, the safety function of the dollar has been withdrawn and the subsequent drop in the primary pricing tool of the commodity only helped leverage today’s advance. A reflection of speculative interests (though a lagging one), both Morgan Stanley and BlackRock reported in public filings that they had both increased their holdings of gold-related funds through the 3Q. Though, for the other roles of the benchmark currency; the need of an inflation hedge was tempered through Tuesday after the iShares TIPs fund fell for the first time in six session.
Spot Silver - $19.10 // $0.61 // 3.30%
While gold was stealing the spotlight with a push to record highs, silver had established the more unrestrained rally through Tuesday’s session. The precious metal pushed to a 16-month high after finally breaking the $19 - $18 range that had established boundaries to otherwise high volatility over the past two weeks. The dollar’s tumble carry through tumble through the day no doubt spurred the silver on; but extending the commodity’s advance to its breakout and keeping it at its highs is more a response to gold’s impact on demand for tangible assets.
