Market Overview - U.S. equities rose during the first trading day of 2018
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Market Overview 2018-01-03

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FX markets burst into life on Tuesday morning, as Tokyo and Sydney opened. Once the London market opened currency movements accelerated dramatically, with several currency pairs whipsawing violently, in a wide range throughout the day. These conditions offered up some excellent trading opportunities for scalpers and day traders, whilst exposing swing and position traders to difficult trading decisions. FX markets appeared to undergo a rebalancing exercise, after the extended and fractured holiday period, a common occurrence on the first full trading day of the year.

U.S. equities rose during the first trading day of 2018, with the tech heavy NASDAQ index rising by 1.5% on the day, representing the largest intraday gain witnessed since late October. The U.S. dollar fell versus its main peers, as analysts and investors doubted the timing and aggression of the proposed FOMC/Fed interest rate rises in 2018 and questioned the impact of the unwinding of the Fed’s balance sheet, due to the weak inflation figures released in December. The dollar index fell by circa 0.5% reaching a fourteen week low, whilst the dollar slumped versus its three main peers; yen, euro and sterling.

Europe’s equity markets slipped during the first trading day of 2018, despite many of the PMIs for the Eurozone coming in ahead of forecasts, whilst the euro initially made gains in the London - European session, but then gave up the majority of its gains from midday onwards, as it experienced whipsawing behaviour versus the majority of its peers. Euro maintained its significant gains versus the U.S. dollar, up circa 0.6% on the day, continuing its recent rise versus USD. In 2017 the single bloc currency made its largest gains versus the dollar since 2003. The European Central Bank’s Benoit Coeure stated over the weekend that he saw a “reasonable chance” the bank’s bond purchases through the APP programme wouldn’t extend after September, which caused the initial significant rise in the euro.

Sterling made significant gains, despite the U.K. manufacturing PMI missing the forecast and falling dramatically to 56.3, from the November reading of 58.2. The U.K. pound rose to a circa three month high versus the dollar, apparently as a consequence of confidence in the U.K. position on Brexit. Quite where this confidence derives from, given that there’s been very little in the way of positive Brexit news over the approx. ten day holiday period, is questionable. Perhaps the rumours that prime minister May is threatening to replace her two leading hard Brexit cabinet members (Davis and Johnson) with more soft Brexit candidates, has encouraged sterling investors that the final exit, in March 2019, will be less punitive for the U.K. GBP/USD rose by circa 10% in 2017, its best performance since 2009, however, it must be noted that sterling failed to recover by such metrics in 2017 (from the Brexit shock) versus the majority of its peers, and the gains versus USD were as a consequence of dollar weakness, not necessarily pound strength. XAU/USD continued its recent rally, the precious metal has maintained price above $1,300 per ounce for two trading days in series and critically after the recent holiday period. The highly defined bullish technical trend, which began in early December, has seen price rise by circa $80 an ounce. Gold closed out the day at circa 1,321, up approx 1.2% on the day and reaching a high not witnessed since mid September.

Source : Exclusive morning call from FXCC, Monday, 2018-01-03, 07:00 GMT

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