News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • Gold Prices Test $1800 Ahead of Fed Meeting, Real Yields Fall https://www.dailyfx.com/forex/market_alert/2021/07/27/Gold-Prices-Test-1800-Support-ahead-of-Fed-Meeting-Real-Yields-Fall.html
  • The Hang Seng Tech index tumbled 5.4% amid intensified fears about China's regulatory risk on various sectors. - Tencent (-6.2%) - Alibaba (-5.0%) - Meituan (-13.9%) - Hang Seng Index (-2.5%)
  • The continuity seen across these volatility cycles is a good thing. Historical precedence offer a blueprint for identifying conditions supportive for a vol-event to occur, and how they may unfold. Deepen your knowledge of historical volatility here: https://t.co/vg7w10la3j https://t.co/A0w6mhPMvH
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 93.33%, while traders in Wall Street are at opposite extremes with 79.17%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/AY4wL5b1NV
  • Risk management is one of the most important aspects of successful trading, but is often overlooked. What are some basic principles or risk management? Find out from @PaulRobinsonFX here: https://t.co/IsnpfJhp91 https://t.co/NrcUfXKP8J
  • Forex Update: As of 04:00, these are your best and worst performers based on the London trading schedule: 🇯🇵JPY: 0.16% 🇬🇧GBP: 0.05% 🇪🇺EUR: 0.00% 🇦🇺AUD: -0.02% 🇨🇭CHF: -0.03% 🇳🇿NZD: -0.06% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/UwJz4Gv6hT
  • Indices Update: As of 04:00, these are your best and worst performers based on the London trading schedule: France 40: 0.12% FTSE 100: -0.02% Germany 30: -0.04% US 500: -0.16% Wall Street: -0.16% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/cGDe8jiSqf
  • Forex sentiment analysis can be a useful tool to help traders understand and act on price behavior. Learn how to get the most out of understanding trader sentiment here: https://t.co/rJznrXkcYz https://t.co/ne0HPR7lO2
  • China considers levies on steel exports to tame domestic prices - BBG
  • Emotions are often a key driving force behind FOMO. If left unchecked, they can lead traders to neglect trading plans and exceed comfortable levels of risk. Read on and get your emotions in check here: https://t.co/eILWbFgHRE https://t.co/lS2YP1HLe5
US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Ilya Spivak, Head Strategist, APAC

Major Currencies vs. US Dollar

(% change week-to-date)

US_Dollar_Major_Currencies_Overtaken_by_Fed_Stimulus_Speculation_body_Picture_5.png, US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Talking Points

  • Major Currencies Anchored to Sentiment Trends as Fed QE3 Speculation Returns
  • Evidence of China Slowdown to be Viewed Through Prism of PBOC Easing Hopes
  • Aussie Dollar May Underperform as Employment Data Boosts RBA Rate Cut Bets

Last week’s disappointing US employment report dented hopes that an accelerating recovery in North America would offset a now widely-expected recession in the Eurozone and a slowdown in China. Worries about a deteriorating outlook on the latter front were compounded early in the week after the East Asian giant reported higher-than-forecast inflation figures and an unexpected return to trade balance surplus reported on Monday and Tuesday respectively. This suggested that PBOC rate cuts to dampen the downturn may be little more than wishful thinking (at least in the near term).

Not surprisingly, the spotlight has now turned on the probability of a third round of Federal Reserve quantitative easing (QE3) to underpin US growth and with it that of the globe at large, with traders awaiting evidence to gauge whether the March US jobs number was a one-off outlier or a real turning point. With that in mind, markets will be most interested in the Fed’s Beige Book survey of regional economic conditions as well as April’s preliminary University of Michigan consumer confidence reading (where expectations call for eighth consecutive increase to the highest level since February 2011). The March set of US CPI data is also due to cross the wires. Although the annual pace of core inflation is expected to remain unchanged at 2.2 percent, a downside surprise is likely to be viewed as QE-supportive, and vice versa. Finally, the Fed speaking calendarwill likewise merit attention, with a heavy docket of official commentary including remarks from New York Fed President Dudley and Chairman Bernanke.

On balance, signs of faltering momentum are likely to drive QE3 hopes and boost risk appetite. Most major currency pairs continue to show meaningful correlations with the MSCI World Stock Index – a proxy for market-wide sentiment trends that reflects investors’ overall confidence in the global growth outlook – meaning such a scenario is likely to see the US Dollar (ticker: USDollar) come under broad-based selling pressure. The relationship is a bit more nuanced for the Japanese Yen, but a firm link between USDJPY and 10-year Treasury yields suggests here too the critical driver of momentum will be risk-driven. If QE3 is perceived as more likely, capital is likely to shift away from the safety of Treasury bonds toward higher-yielding assets, sending yields lower and USDJPY lower. Needless to say, diminished QE3 expectations will probably produce the opposite effect.

Looking past the US, still more high-profile Chinese economic data threaten to amply global growth concerns. Gross Domestic Product data are set to show growth in the first quarter slowed to the weakest since the three months ending June 2009 while Industrial Production expanded at the weakest annual pace in 31 months. Retail Sales and Fixed Asset Investment growth are also forecast to deteriorate. Importantly, the focus on wishful stimulus hopes may counter-intuitively boost risk appetite in the event of meaningful downside surprise. Australian Employment figures round out the week, with the jobless rate expected to rise to 5.3 percent for the first time since September of last year. This stands to fortify the markets’ expectations for an RBA interest rate cut at the May policy meeting and could see the Aussie underperform its commodity-bloc counterparts. Traders now price in a 93 percent chance of a 25bps reduction in benchmark borrowing costs according to data from Credit Suisse.

EURO

US_Dollar_Major_Currencies_Overtaken_by_Fed_Stimulus_Speculation_body_Picture_6.png, US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Source: Bloomberg

BRITISH POUND

US_Dollar_Major_Currencies_Overtaken_by_Fed_Stimulus_Speculation_body_Picture_7.png, US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Source: Bloomberg

JAPANESE YEN

US_Dollar_Major_Currencies_Overtaken_by_Fed_Stimulus_Speculation_body_Picture_8.png, US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Source: Bloomberg

CANADIAN DOLLAR

US_Dollar_Major_Currencies_Overtaken_by_Fed_Stimulus_Speculation_body_Picture_9.png, US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Source: Bloomberg

AUSTRALIAN DOLLAR

US_Dollar_Major_Currencies_Overtaken_by_Fed_Stimulus_Speculation_body_Picture_10.png, US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Source: Bloomberg

NEW ZEALAND DOLLAR

US_Dollar_Major_Currencies_Overtaken_by_Fed_Stimulus_Speculation_body_Picture_11.png, US Dollar, Major Currencies Overtaken by Fed Stimulus Speculation

Source: Bloomberg

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES