NY Open: Beware a 'Santa rally' in USD

The concept of a US dollar rally during the holiday-shortened week ahead is nothing to “ho, ho, ho" about. EURUSD climbed from 1.1272 last Friday to 1.1484 today – that’s 0.0212 points in conditions where the Federal Reserve is raising rates and maintains plans to do it twice more in 2019.

The single currency is still below the 23.6% retracement level of the 2018 range, suggesting the rally is merely a correction. 

GBPUSD rallied from 1.2530 to 1.2705 during the same time span despite rising risks of a “no-deal” Brexit. The Bank of England is concerned; it has left rates unchanged and said that Brexit risks are hurting the economy. It seems very unlikely that GBPUSD has a lot of upside from current levels in the present environment. 

USDJPY collapsed from 113.64 to a low of 111.57. Sure, the move was a reaction to rising risk-aversion and sinking US Treasury yields, but prices are still above support in the 111.10- 111.40 area.  

There is a lot of major data due on Friday, but arguably the conclusions from yesterday’s Federal Open Market Committee meeting and today’s BoE meeting render the data moot, providing a lot of incentive to square positions ahead of next week’s holidays. It could be happening now as the US dollar has steadily ticked higher since the New York open.

This morning’s US data were mixed and not really a factor for FX but more so for equities. The Philadelphia Fed Manufacturing Index was 9.4 versus a forecasted 15.0. Initial Jobless Claims were as expected.

Wall Street tipped into the rate at the open after looking like it would have a positive start a few hours earlier. Traders were unhappy with the news that the US has stepped up the pressure on China. The Washington Post reported that the Trump administration and a dozen other countries which include the UK, Canada, Japan and Germany are planning to condemn China for its efforts to steal trade secrets and advanced technology from other nations. Sanctions are expected.