Traders Optimistic About Strength of Euro Zone Recovery, Pessimistic About Future U.S. Rate Hikes

While U.S. investors primarily focused on the stock market and holiday shopping sales, Europe reacted to strong economic data, underpinning the Euro and pressuring the U.S. Dollar Index.

The EUR/USD finished the session at 1.1924, up 0.0076 or +0.64%. The December U.S. Dollar Index tumbled to 92.707, down 0.428 or -0.46%.

The greenback fell to its lowest level since late September against a basket of currencies on Friday as investors grew optimistic about the strength of the Euro Zone’s recovery and growth potential. At the same time, traders are growing pessimistic about the U.S. Dollar because of concerns over future rate hikes.

 

The EUR/USD hit its highest level since September 25 and finished more than 1 percent higher for the week. This was the second straight 1 percent weekly gain and the third straight week of gains.

While U.S. markets were closed on Thursday, Euro Zone business growth surveys showed surprise growth, supporting the European Central Bank (ECB) move last month to announce a throttling back to its monetary stimulus. On Friday, the German Ifo Business Climate rose to 117.5, beating the 116.6 estimate.

Minutes from the ECB’s latest policy meeting, released on Thursday, showed policymakers had broadly agreed on extending their quantitative easing scheme, albeit at a lower level, but keeping asset purchases open-ended appeared to generate fiercer debate.

In the U.K., the GBP/USD rose to its highest level since October 2 as markets interpreted the latest comments from top European Union policymakers as mildly positive for Brexit negotiations.

The U.S. Dollar continued to feel pressure from Wednesday’s release of the latest Fed minutes which showed some policymakers were concerned about stubbornly weak U.S. inflation.

U.S. Economic Data

U.S. Flash Manufacturing PMI came in at 53.8, below the 55.1 forecast and 54.6 previous read. Flash Services PMI was 54.7. The forecast came in at 55.5. The previous month was revised down to 55.3.

U.S. Equity Markets

U.S. equity indexes finished the shortened trading week with strong weekly gains. Without any fresh economic news on Friday, traders relied on their speculative instincts and placed bets on a strong holiday shopping season.

The S&P 500 Index closed above 2600.00 for the first time, led by the information technology sector. Macy shares were among the best-performing stocks in the index despite a nationwide computer glitch at their stores.

Gold

Gold futures finished lower on Friday as some investors took advantage of the thin trading session and booked profits ahead of the week-end. Increased demand for risky assets helped pressure prices while last week’s dovish Fed minutes continued to underpin the market.

Crude Oil

U.S. West Texas Intermediate crude oil futures hit a fresh two-year high on Friday, boosted by the closure of the 590,000 barrels per day (bpd) Keystone pipeline following a spill earlier in the week. Traders also believe the market is tightening due to the OPEC-led program to cut production, trim the global supply glut and stabilize prices. OPEC will make its decision about extending the program beyond the March 2018 deadline at its policy meeting on November 30.