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USD gains on Fed hike expectations

The US dollar gained across the board as the probability of a Federal Reserve (Fed) December rate hike rose above 70% on news that the Fed could have more capability for raising rates, if the next US President leans towards a more expansive fiscal policy.

 

Although US 10-year yields are still below 1.80%, the US sovereign yield curve steepened slightly over the past month, as all maturities shifted higher.

 

The euro and the pound remained ranged before the Bank of England (BoE) Governor Carney and the European Central Bank (ECB) President Draghi’s speeches due later in the day.

 

Investors’ appetite in the single currency is expected to remain limited as Mr. Draghi left the market in a heavy cloud of uncertainty regarding the future of its asset purchases programme, due to end in March 2017. The ECB hinted at a smooth wining of Quantitative Easing (QE), lending a broad playground to market participants to speculate on potential next steps, such as the QE engineering, or QE tapering. The dovish ECB speculations are expected to further weigh on the euro, as we move towards the ECB’s December meeting. We do not expect to hear any insightful comment from Mr. Draghi’s speech today, and anticipate a minor correction in the euro against the US dollar and the pound. While the lack of conviction could limit any directional attempt in EURGBP, traders remain sellers on the EURUSD rallies, given that the mid-term macro investors are chasing opportunities to strengthen their short euro positions in light of a further divergence between the Fed and the ECB.

 

Commodities are trading higher today. The WTI finds buyers below the $50 handle despite a stronger US dollar. The uncertainty in the oil market persists ahead of the OPEC meeting due at the end of November in Vienna. The one-to-one meetings among oil producers, before the big Vienna meeting, hint at the rising will to line up the production plans in order to keep oil prices at sustainable levels. This means a consolidation towards the $60 level by the end of the year. Oil producers, themselves, remain heavily short on oil because they need to stay hedged against a potential drop in oil prices in case the efforts to pump up the prices fail. Oil producers' short positions are at the highest levels since 2007, confirming the ongoing scepticism in this market.

 

FTSE started the day upbeat; mining stocks (+1.45%) lead gains in London, followed by energy stocks (+0.84%) and financials (+0.65%).

 

Anglo American (+4.46%), Rio Tinto (+2.92%), Glencore (+2.67%)  

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