Dow Winning Streak Under Threat on Friday

Dow 10-day winning streak under threat as traders lock in profits;
Mnuchin dampens bullish sentiment on dollar in the near term;
Gold testing big technical resistance as USD pulls back.

Craig Erlam MarketPulse

The Dow's winning streak is set to be seriously tested on Friday, with US futures currently indicating that all three major indices will open around one third of a percentage point lower.

In the absence of much economic data today and with the Fed taking the day off from public appearances, it appears we may be seeing some profit taking from traders which could see all three indices end the session in the red for the first time in a couple of weeks. We do have new home sales and UoM consumer sentiment data due out in today's session but it may take something rather substantial to tempt buyers back in as we near the end of the week.

Yesterday's revelation by Steve Mnuchin that some of Trump's more stimulative measures such as tax reform will come later in the year appears to have taken the wind out of the sails of the dollar rally. Markets have rallied and the dollar strengthen since Trump's election victory on the expectation that stimulus will follow but it looks like we may have to wait a little longer and there's still little detail on what it will entail.

The insistence again though that this will be significant, with regards to tax reform, may be enough to continue to support stock markets for now, as seen by the Dow extending its winning streak on Thursday to 10 sessions, but it's not helping the dollar. The dollar has appreciated strongly since Trump's victory but with the timing of the stimulus coming later, markets are once again doubting the Fed's forecast of three hikes.

The drop off in the dollar has been the catalyst for Gold taking a stab at breaking through a big level of technical resistance. The $1,250-1,260 level is big for Gold and should we see it break beyond here then we could well be headed back towards $1,300, a move that looked incredibly unlikely only two months ago but one that has been spurred on by the ever-worrying political risk environment.

Author

Craig Erlam

MarketPulse

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

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