Market Overview

Dollar secured a major level vs euro but retreats against other instruments

Global markets returned to growth on Tuesday, with demand for value stocks returning amid stronger-than-expected business reports in the US and several other countries. Strong preliminary PMI reports for Services and Manufacturing in November came as a surprise to markets and helped the dollar to halt its retreat.

Overnight, EURUSD once again failed to overcome 1.19. As in numerous times over the last three months, the bear attack from this level was powerful, leading the pair below 1.18 in a matter of hours. The momentum of the dollar’s appreciation was short-lived, as it was due to strong data rather than the markets fleeing to safe-assets. Soon after, investors switched to buying risk assets and related currencies.

EURUSD had already reversed half of yesterday’s rollback by Tuesday morning, trading at 1.1850. The recovery in demand for risk assets often plays against the dollar, forcing it to retreat even against the euro. Thus, the dollar has received local support from an important level to the euro but continues to retreat on other fronts. Therefore, the rebound of the dollar index from the 2-year low area risks being short-lived.

The reversal to the dollar’s rise on Monday night triggered USDJPY’s pullback above 104.50, and much of this increase is still with us. The growth of this pair is often accompanied by increased purchasing in the stock and commodity markets. Investors are borrowing in yen to fund purchases of risk assets, which supports the weakening of the yen during boom periods. This has not happened in recent months as the markets have found funding in dollars and euros.

The weakening of the yen is feeding a new round of growth in Japanese stocks, pushing Nikkei225 to new highs since 1991.

In parallel, Gold has fallen out of the trading range of the last 4.5 months, trading at $1830. By contrast, oil has soared to highs since March. Brent traded at $46.50, again testing the highs of August and earlier in the morning touched the highest values since March at $46.66. WTI has similar dynamics, rising to $43.50.

The recovery in oil quotes is fuelling strong demand for stocks of raw materials and energy companies, which added 4%-15% yesterday while continuing Crude Oil growth pushes them even higher today.

The FxPro Analyst Team

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