European markets underwent another mixed session yesterday with the DAX falling to a three-week low over concerns that the new German government, under new Chancellor Olaf Scholz, could be on the cusp of implementing another full-scale lockdown. The FTSE100, on the other hand managed to close higher for the third day in a row, helped by resilience in the energy sector, as oil prices closed near one-week highs.

US markets, after slipping lower in initial trading yesterday, led by the Nasdaq, managed to recoup their early losses, and finish the day higher ahead of today’s Thanksgiving holiday break.

With that in mind today’s European market session, while set to see a positive start, could well be a subdued affair as the day progresses, with most of the attention likely to be on how the new German government deals with the Covid emergency unfolding across its health system.

Last night’s Fed minutes would appear to show a central bank that is becoming increasingly anxious about rising prices and their effect on the US economy. Unsurprisingly the pace of the taper was a topic for discussion, with some participants wanting a faster taper than the current $10bn in US treasuries and $5bn in mortgage-backed securities. Over the last two meetings there also seemed much less confidence that what we are seeing is transitory in nature, when it comes to inflation.

In the wake of yesterday’s economic data for jobless claims, personal spending, and inflation data we can only expect this nervousness to rise, and the calls for a faster taper to increase when the Fed next meets in three weeks’ time. Not only did core PCE deflator rise to 4.1%, but weekly jobless claims fell to their lowest levels since 1969, while personal spending in October rose by 1.3%.

None of these speak to an economy in need of the type of support the Fed is currently giving it and add weight to the concerns the Fed is behind the curve when it comes to monetary policy.

We already know the likes of James Bullard of the St Louis Fed and Raphael Bostic of the Atlanta Fed are some of the more hawkish voices on the FOMC, and they now appear to be being joined by some previously dovish voices.

This shift is already being vocalised by the likes of Mary Daly of the San Francisco Fed who said she was open to accelerating the pace of the taper program in comments made yesterday. She has in the past, tended to lean towards the dovish side in recent commentary, so this shift is particularly notable, and suggests the calculus is shifting on the FOMC.

What this means for the US dollar is no better shown in the US dollar index, which is at its highest levels since July 2020, and which also pushed to its highest level against the yen in nearly 5 years.

While the US dollar continues to sweep all before it, Bank of England watchers will have the opportunity to listen to the utterances of Governor Andrew Bailey later today, when he speaks at a Cambridge Union event, hosted by Mohamed El-Erian, who has been a vocal critic of the Fed being behind the curve on its on monetary policy stance. 

Hopefully Governor Bailey will have taken note of how the RBNZ was able to raise rates earlier this week, in a move that was widely expected, and goes to show that forward guidance when done properly isn’t hard.

EURUSD – Continues to sink towards the June 2020 lows and the 1.1160/70 area. For the downside pressure to diminish we would need to see a push back above the 1.1400 area. A move below 1.1150 could trigger further losses towards 1.1000. 

GBPUSD – The bias remains for further declines towards 1.3160, while below the 1.3500 area. We need to gain a foothold above the 1.3500 area and kick on through the 1.3520 area to open up the 1.3600 area.

EURGBP – While below the 0.8440 level the risk is for a move below 0.8380 and a move towards 0.8280. Above 0.8440 targets the 0.8480 area.

USDJPY – Has moved through the 115.20 level opening the prospect of a move towards 116.00, and the December 2016 peaks of 118.60. We need to hold above the 114.50 level for this to unfold.

FTSE100 is expected to open 15 points higher at 7,301.

DAX is expected to open 76 points higher at 15,954.

CAC40 is expected to open 35 points higher at 7,077.

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