Currency Markets Gyrate Amid Pre-Positioning for Fed Rate Hike

2015-12-14 09:25:00

Talking Points:

Currency Markets Correct Friday’s Price Action on Pre-FOMC Positioning
US Dollar May Yield Disparate Response vs. Majors on Fed Rates “Liftoff”
Gauge Trends and Spot Reversals in the Top Currencies with DailyFX SSI

Currency markets are in retracement mode to start the trading week. The Swiss Franc, Euro, British Pound and Japanese Yen are trading lower having outperformed on Friday while the Australian and Canadian Dollars are in recovery mode having been the weakest over the same period. Risk sentiment trends have done an about-face as well: S&P 500 futures are trading sharply higher after the benchmark stock index suffered the worst drop in over two months to close last week.

Price action appears to reflect pre-positioning as markets swing back toward neutral ahead of this week’s much-anticipated FOMC monetary policy announcement. Fed Funds futures suggest markets widely expect Fed Chair Yellen and company to deliver the first post-QE interest rate hike, nudging the target range for the benchmark lending rate higher by 25 basis points into the 0.25-0.50 percent territory. That may prove negative for sentiment.

The Fed’s aggressive easing over the past seven years slashed returns on safer assets and encouraged a reach for yield outward along the risk spectrum. The growing proximity of stimulus withdrawal since mid-2014 might have been expected to begin reversing this dynamic. Various false starts failed gain traction however even as the US Dollar embarked on a long-lasting rally to reflect the looming policy shift.

This warns that a period of portfolio readjustment is still pending and may be triggered in earnest once the rate hike is finally a reality. The ensuing risk aversion may bode ill for the sentiment-linked Australian and New Zealand Dollars, sending them downward alongside stock prices, while boosting funding currencies like the Euro and the Japanese Yen. Within that context, Friday’s moves may have amounted to an early preview of the markets’ disposition, while today’s retracement marks an unwillingness to fully pre-commit before speculation turns into fact.

Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
21:30	NZD	Performance Services Index (NOV)	59.8	-	56.5
23:50	JPY	Tankan Large Mfg Index (4Q)	12	11	12
23:50	JPY	Tankan Large Mfg Outlook (4Q)	7	11	10
23:50	JPY	Tankan Large Non-Mfg Index (4Q)	25	23	25
23:50	JPY	Tankan Large Non-Mfg Outlook (4Q)	18	22	19
23:50	JPY	Tankan Large All Industry Capex (4Q)	10.8%	10.2%	10.9%
23:50	JPY	Tankan Small Mfg Index (4Q)		-1
23:50	JPY	Tankan Small Mfg Outlook (4Q)	-4	-2	-2
23:50	JPY	Tankan Small Non-Mfg Index (4Q)	5	2	3
23:50	JPY	Tankan Small Non-Mfg Outlook (4Q)			1
00:01	GBP	Rightmove House Prices (MoM) (DEC)	-1.1%	-	-1.3%
00:01	GBP	Rightmove House Prices (YoY) (DEC)	7.4%	-	6.2%
00:30	AUD	Credit Card Purchases (A$) (OCT)	24.8B	-	24.8B
00:30	AUD	Credit Card Balances (A$) (OCT)	50.6B	-	50.8B
04:00	JPY	Tokyo Condominium Sales (YoY) (NOV)	4.8%	-	-6.5%
04:30	JPY	Industrial Production (MoM) (OCT F)	1.4%	-	1.4%
04:30	JPY	Industrial Production (YoY) (OCT F)	-1.4%	-	-1.4%
04:30	JPY	Capacity Utilization (MoM) (OCT)	1.3%	-	1.5%
04:30	JPY	Tertiary Industry Index (MoM) (OCT)	0.9%	0.5%	-0.4%

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
08:00	CHF	Total Sight Deposits (DEC 11)	-	467.5B	Low
08:00	CHF	Domestic Sight Deposits (DEC 11)	-	397.1B	Low
10:00	EUR	Eurozone Industrial Production (MoM) (OCT)	0.3%	-0.3%	Medium
10:00	EUR	Eurozone Industrial Production (YoY) (OCT)	1.4%	1.7%	Medium
10:00	EUR	ECB's Nowotny Briefs IMF on Article 4 Mission	-	-	Low
11:00	EUR	ECB’s President Draghi Speaks in Bologna, Italy	-	-	Medium