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.

Free Trading Guides
EUR/USD
Mixed
Oil - US Crude
Mixed
Wall Street
Bearish
Gold
Mixed
GBP/USD
Mixed
USD/JPY
Bearish
More View more
Real Time News
  • Negative yielding government bonds – What are they telling us? Find out from @nickcawley1 here: https://t.co/F6JuhmrvPT https://t.co/ZzbHAVT6RE
  • LIVE IN 30 MIN: In this session, Currency Analyst @ZabelinDimitri will analyze the cross-asset impact of geopolitical risks affecting markets in the week ahead. https://www.dailyfx.com/webinars/146770987
  • Join @ZabelinDimitri 's #webinar at 11:30 PM ET/3:30 AM GMT to find out how geopolitical risk will affect the markets in the week ahead. Register here: https://t.co/hsULxMNOtM https://t.co/jdzRaFJnaa
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Silver: 0.20% Gold: 0.06% Oil - US Crude: -3.63% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/GqKRXlbHQc
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.42% 🇳🇿NZD: 0.30% 🇪🇺EUR: 0.07% 🇨🇭CHF: -0.04% 🇬🇧GBP: -0.24% 🇯🇵JPY: -0.38% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/6yhR5FFtZw
  • LIVE NOW: Join DailyFX Senior Strategist @IlyaSpivak LIVE as he discusses the outlook for the financial markets in the week ahead! https://www.dailyfx.com/webinars/889679267
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 95.10%, while traders in US 500 are at opposite extremes with 68.84%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/gvtwxfEvLB
  • Japan coronavirus response package: - Increase subsidy rates for firms to stem job losses - Allow 1 year tax payment delay for virus-shaken companies - Cut property tax to zero for smaller firms (BBG) #JPY #coronavirus
  • - Internal political rifts in Eurozone, #OPEC may be biggest Euro & Brent catalysts this week - Revived North-South tension in Eurozone may cause delays as Riyadh and Moscow dig in heels https://www.dailyfx.com/forex/fundamental/article/special_report/2020/04/06/Euro-Crude-Oil-May-Suffer-From-OPEC--Eurozone-Political-Rifts.html #oott
  • Get your stock market basics right - what is the stock market and how does stock trading work? Find out here: https://t.co/JfAJLAtlsY https://t.co/PVAmCCDR8w
Euro May Turn Lower vs US Dollar as Markets Digest Fed Outlook

Euro May Turn Lower vs US Dollar as Markets Digest Fed Outlook

2020-03-10 11:30:00
Ilya Spivak, Head Strategist, APAC
Share:

EURO, GOLD, US DOLLAR, FED, INTEREST RATES – Talking Points:

  • Gold struggling, US Dollar showing mixed performance amid market rout
  • Price action may hint markets have almost fully priced in Fed easing bets
  • Euro may reverse from 13-month high as Dollar retains yield advantage

Global financial markets’ response to blistering liquidation at the start of the trading week produced a mostly by-the-book response from global financial markets:

Cycle-sensitive crude oil and stock prices fell amid deepening worries about the economic impact of the coronavirus outbreak, with the former move amplified by the collapse of the OPEC+ output cap scheme. Perennially anti-risk US Treasury bonds and the Japanese Yen rose, the former attracting haven demand and the latter seemingly benefiting from liquidation of JPY-funded carry trades.

Gold, stocks, crude oil, bonds, major currencies amid market selloff

Chart created with TradingView

The responses from gold prices and the US Dollar have been more confounding. The Greenback seems to be of two minds, gaining on commodity-linked FX but falling against the Euro, Yen and Swiss Franc. The yellow metal probed higher – as might have been expected from the archetypal non-interest-bearing asset at a time when yields plunged to record lows – but failed to find follow-through (at least for now).

Indeed, gold’s rise is in the single digits since the start of the year (8.93 percent as of the snapshot below, taken on 10 March 2020 at 7:28 GMT). The bellwether 10-year Treasury note yield has shed over 60 percent while the priced-in 2020 policy outlook implied in Fed Funds futures has recorded a move than seven-fold shift in the dovish direction over the same period.

Gold has struggled to rise even as US yields drop, Fed rate cut bets swell

Chart created with TradingView

That dramatic swell in stimulus bets now reflects expectations now amounts to near-certainty in a further 75-100 basis point reduction in the benchmark lending rate after last week’s surprise 50bps emergency cut. This implies a move to within a hair of the record-low 0-25bps target Fed Funds range, if not an outright return to it. So, markets have already priced in nearly all the conventional easing that could be had.

Markets expect Fed will cut rates to within striking distance of zero in 2020

Source: CME Group

Interestingly, this has left the US Dollar with a narrow yield advantage against its major counterparts. The dramatic shift in the policy outlook has understandably translated into a shrinking rate gap between the US, where rates had been highest among the G10 economies at the start of the current easing cycle. Nevertheless, the front end of the US yield curve still offers a positive return (~58bps) compared to alternatives.

US Dollar has a yield advantage despite dovish Fed policy outlook shift

Chart created with TradingView

This might explain gold’s reticence to some extent. The pace-setting anti-fiat asset is typically animated by the global monetary policy outlook above all, and ubiquity of the US Dollar as a reserve currency means the Fed is the driving force there. If market pricing already reflects as much of a dovish shift as might be reasonably expected, the metal might be finding itself without fuel for gains.

Following on from this could also be a USD recovery against those currencies where it has been suffering a one-sided adjustment in relative yield bets. The Euro is perhaps the most eye-catching among these: it has roared higher, which may be explained by the ECB’s limited room to keep pace with on-coming Fed easing. Its latest target variable – the Deposit Rate – is already in negative territory.

Traits of Successful Traders
Traits of Successful Traders
Recommended by Ilya Spivak
Traits of Successful Traders
Get My Guide

RESOURCES FOR TRADERS

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

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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

DISCLOSURES

News & Analysis at your fingertips.