Profit-Taking, Quarterly Position-Squaring Pressures U.S. Dollar

The U.S. Dollar reversed course to the downside against a basket of currencies for the first time in three days, ending this week’s winning streak. Traders blamed the weakness on end-of-the-quarter position-squaring and profit-taking.

December U.S. Dollar Index futures settled at 93.02, down 0.151 or -0.16%.

Some investors said the Greenback was overextended, driven higher primarily this week by hawkish remarks from Fed Chair Janet Yellen and steep, politically driven selling in the Euro. The Trump Administration’s release of its long-awaited tax reform plan also helped underpin the index, but the lack of follow-through to the upside after an upbeat Final GDP report may have been the catalyst for the start of the selling on Thursday.

Economic News

In U.S. economic news, the final read on U.S. second-quarter gross domestic product showed a 3.1 percent increase. Traders were looking for a 3.0 percent increase. Traders said there was little reaction to the news because the results are dated. They have already moved on to the third quarter GDP which could come in lower because of the impact of Hurricanes Harvey and Irma on the U.S. economy.

In other news, Weekly Unemployment Claims came in at 272K, higher than the 269K forecast and 260K previous read.  The Goods Trade Balance improved to -62.9 billion, better than the -65.0 billion forecast. Preliminary Wholesale Inventories came in at 1.0%, worse than the 0.4% estimate.

U.S. Equity Markets

The major U.S. stock indexes closed mixed but mostly higher on Thursday with the small-cap Russell 2000 stock index hitting a record high in reaction to the Republican tax reform plan. This indicates that investors believe small-cap stock will benefit the most from the proposed lower tax rates.

The price action in the stock indexes suggests investors are just trying to maintain the upside momentum as they position themselves for the end of the quarter and ahead of the start of earnings season in about two weeks.

Sectors leading the markets higher continued to rotate. Earlier in the week, the rally was supported by strong bank stocks. Mid-week, the upside momentum was fueled by a recovery in technology stocks. On Thursday, materials and real estate stocks supported the rally.

Gold

Gold futures finished slightly better on Thursday after hitting a six-week low. The market was supported by a weaker U.S. Dollar, but remained on track to post its biggest monthly loss this year. The market is also in a position to post its third straight weekly decline, but should be able to finish higher for the quarter.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil finished lower on Thursday, giving up earlier gains that sent WTI prices to their highest level since April 19. Brent crude posted an intraday rally but failed to make a new high for the week.

Earlier gains were spurred by tension around northern Iraq following the Kurdistan region’s vote in favor of independence. On Thursday, Turkey promised to deal only with the Iraqi government on crude, “restricting oil export” operations to Baghdad, the office of Iraqi Prime Minister Haider al-Abadi said. The referendum vote also prompted Turkey to threaten to close the region’s oil pipeline.

Traders said that shutting the pipeline could mean 500,000 to 550,000 barrels per day of crude oil may not reach the market. Analysts also put the chances of shutting down the pipeline linking northern Iraq and Ceyhan in Turkey at about 20 percent.