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Buying Momentum Falters, Shutdown and Consumer Confidence to Move Dollar

Asian markets pushed higher overnight, with the exception of the Shanghai Index, which was nursing losses following dismal Chinese industrial profits. Europe also started in the black, although European bourses were back in the red by midway through the European session.

US stocks are pointing to a softer start on Thursday, after the S&P experienced the biggest rally since 2009. Whilst the Dow Jones booked 5% gains in the previous session, momentum following the advance is limited and buying optimism had faded fast.

Whilst risk on dominated in the previous session, concerns over China are weighing on sentiment on Thursday. Chinese industrial profits fell for the first time since in 3 years, fanning concerns over the health of the Chinese economy. Trade tensions between the US and China have pressurized manufacturing activity in China, with expectations growing that China experience a contraction in factory output for the first time in 2.5 years.

Whilst global stocks charged higher overnight following the momentous session on Wall Street, FX markets were telling a different story with risk off amplified by weak Chinese industrial profits. Risk on currencies the Australian dollar and New Zealand dollar were trading lower, whilst safe haven Japanese yen was gaining ground.

The dollar has failed to capitalize on the surge in US stocks in the previous session. The dollar index is trading 0.3% lower versus a basket of currencies. As the US government enters its sixth day of shutdown chatter from the White House will remain in focus. As a result of the shutdown the US’s Department of Commerce Bureau of Economic Analysis and Census Bureau will not be publishing economic data. This means that November’s new home sales data won’t be released today as planned. The Labor Department is expected to release jobless claims data as scheduled.

Traders will also turn their attention to US consumer confidence later today. Consumer sentiment is expected to tick lower in December to 133.6, down from 135.7 the month previous as confidence continues to decline from an 18 year high in October. November’s decline marked the first dimming of confidence in 5 months, should consumer confidence drop to 133.6, this would be the weakest level for sentiment in 4 months. US economic stats have tended to surprise to the downside latterly; a miss on consumer confidence could amplify the risk off mood considerably. The bears are pushing the dollar index lower, a weak reading from consumer confidence could see the DXY target 96.

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