| Quick Facts | Table of Contents |
Quick Facts
- Forex market surging ahead of Christmas holiday
- Major equity indices (S&P 500, Dow Jones, and Nasdaq) experiencing significant boost
- Canada’s GDP comes in stronger than expected, US 10-year Treasury yield hits 6-month high
Table of Contents
- A Santa Rally for the Books
- Yield Curve Update: A Shift in Sentiment
- Technical Analysis: A Bullish Trend Forms
- Forex Implications: A Bullish Bias
- Investment Strategy: Play the Santa Rally
Forex Today: Stock Markets Gaining Before Christmas Holiday – 24 December 2024
As the year winds down, investors are looking for a strong finish to the year, and the Forex market is delivering. Despite the upcoming Christmas holiday, major equity indices are soaring, with Canada’s GDP coming in stronger than expected, and the US 10-year Treasury yield hitting a 6-month high. Let’s dive into what’s driving this surge and what it means for your Forex trading strategy.
A Santa Rally for the Books
It’s no secret that the week before Christmas can be a time of low trading volumes and emotions running high. Investors are either busy wrapping up their holiday shopping or already enjoying their winter break. However, this year, the markets are bucking the trend, with most major equity indices (S&P 500, Dow Jones, and Nasdaq) experiencing a significant boost.
In North America, the TSX Composite Index, which tracks the Canadian market, has been a standout performer, with a whopping 2.5% gain today alone. This is largely attributed to stronger-than-expected GDP numbers, which eased concerns about the country’s economic outlook. Canada’s resilience in the face of global economic uncertainty is a testament to its diversified economy and steady monetary policy.
Meanwhile, in the US, the S&P 500 and Dow Jones have both reclaimed their 50-day moving averages, a key technical level that suggests a healthier trend. This bounce is likely a reaction to the Federal Reserve’s dovish tone and the prospect of slower interest rate hikes in the new year.
Yield Curve Update: A Shift in Sentiment
The 10-year US Treasury yield, a benchmark for the overall health of the bond market, has breached its 6-month high. This sudden upward shift in sentiment is a departure from the recent yield curve flattening, where investors sought safety in government bonds. The increased appetite for riskier assets, such as stocks and high-yield bonds, suggests that investors are growing more confident about the economic outlook.
This yields curve movement is particularly significant, as it often precedes a broader shift in market sentiment. When yields rise, it’s often a sign that investors are anticipating a strong economic growth, which in turn, can lead to a pickup in stock prices.
Technical Analysis: A Bullish Trend Forms
From a technical perspective, today’s market action has created a bullish trend formation. The break above the 200-day moving average (DMA) in the S&P 500 has triggered a buy signal, indicating that the recent corrective move may be over.
Furthermore, the rising 50-day DMA is increasingly becoming an important technical support level. As prices continue to rise, this level is likely to serve as a floor for any potential pullbacks.
Forex Implications: A Bullish Bias
The Forex market has also responded to this news, with most major currencies weakening against the US Dollar. The USD/JPY has bounced back above the 110 handle, while the EUR/USD has dropped to a 1-week low.
This sudden change in sentiment suggests that investors are rotating out of safe-haven currencies and into riskier assets. The bucking trend in the dollar index (DXY) is a sign that the overall market is growing more optimistic about the global economic outlook.
Investment Strategy: Play the Santa Rally
As Christmas approaches, investors are presented with a rare opportunity to take advantage of a Santa rally. With most major equity indices pushing higher, it may be wise to take a contrarian approach and position yourself for a continued upward trend.
Here are some bullish strategies to consider:
- Buy the dip: If the markets experience a pullback in the coming days, look to buy quality stocks and ETFs at discounted valuations.
- Long-term positions: Enter into long-term positions in undervalued sectors, such as technology and financials, which have a high potential for growth in the new year.
- Currencies: Short AUD/USD, NZD/USD, and EUR/USD, anticipating additional weakness in the coming days.
- Yield curve arbitrage: Trade the 10-year Treasury yield, bet on continued upward movement.
