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
Bullish
GBP/USD
Mixed
USD/JPY
Mixed
Gold
Bullish
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Bitcoin
Mixed
More View more
Real Time News
  • The status of the US #dollar as the safe-haven asset of choice remains untouched and any weakness in the greenback is likely to be short-lived. Get your $USD market update from @nickcawley1 here: https://t.co/LO2u38jpUT https://t.co/ctgCJSOeTH
  • #FTSE 100 testing key support as the index lacks a directional bias. #DAX reverses off channel top. Get your indices technical analysis from @JMcQueenFX here: https://t.co/IHF2dgMfg9 https://t.co/2fMTFlOeTR
  • With knowledge of price action, traders can perform a wide range of technical analysis functions without the necessity of any indicators, including management of risk. Build on you knowledge of price action here: https://t.co/9hQA0bsYtt https://t.co/5KQowxuiBf
  • The term ‘Ichimoku,’ literally means ‘one glance,’ in Japanese. Ichimoku, or the one glance indicator, is considered to be a self-contained system in the fact that no additional indicators are necessary. Learn more about the 'one glance' indicator here: https://t.co/T7o7W9C0Ro https://t.co/7bhBfWvEkR
  • Support and resistance are the cornerstone of technical analysis, making it the foundation that you build your knowledge on. Build a stronger foundation here: https://t.co/yXLaRpl90I https://t.co/85JHunf2Xf
  • Many traders ask how a trading method that is 77 years old is applicable today. Learn about the Gartley pattern and see how you can incorporate it into your trading style here: https://t.co/2yPmGH0XvT https://t.co/rtqUKZSdn1
  • Recessions can devastate the economy and disrupt the fortunes of individuals, businesses, and investors. But economic decline in the business cycle is inevitable, and your trading can be defined by how you respond to crisis. learn how to prepare here: https://t.co/e4CnobJCss https://t.co/ywv7RVP9qY
  • Crude oil prices may rise on supply-disruption fears after the outcome of the Iran election, but sentiment from #coronavirus fears may derail Brent’s recovery ahead of the G20 summit. Get your crude #oil market update from @ZabelinDimitri here: https://t.co/83iTphwaWv #OOTT https://t.co/RgQku64XyW
  • The Australian Dollar remains severely weighed down by #coronavirus worries and a lack of domestic data points will probably keep that story in the driving seat. Get you $AUDUSD market update from @DavidCottleFX here: https://t.co/qswUnnXVwR https://t.co/NyZ0iEpILm
  • While Sino-US trade jitters are temporarily abating, China-Swedish trade tensions are rising as a part of a political contagion of growing economic hostilities between nations across the world. Get your market update from @ZabelinDimitri here:https://t.co/F1fVoyzoz5 https://t.co/uOLKRebXB1
Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

2019-10-28 02:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:

Central Bank Watch Overview:

  • With a Brexit deal in focus and the US-China trade war de-escalating, G10 currencies’ central banks’ rate cut odds have receded.
  • While the Federal Reserve and Bank of Japan are expected to cut rates this coming week, the Bank of Canada has no moves discounted over the next year.
  • Retail trader positioningsuggests USD/JPY may continue to rally while USD/CAD may continue to fall.

Looking for longer-term forecasts on the Euro, Yen, or US Dollar? Check out the DailyFX Trading Guides.

With progress on the US-China trade war front moving along nicely according to trade representatives on both sides of the Pacific, G10 currencies’ central banks have seen interest rate cut odds drop further in recent days – a trend that has been in place for several weeks now. Gains by global equity markets (the US S&P 500 hit a new all-time high on Friday, October 25) alongside weakness among the Japanese Yen, Swiss Franc, and US Dollar suggests that traders are no longer concerned about the imminent threat of a global recession.

Rate Cut Due at October Fed Meeting

The Federal Reserve has been front-and-center in terms of rate cut expectations driving market sentiment, largely due to the US-China trade war. But now that negotiations are moving in the right direction again, expectations for heavy-handed monetary stimulus have been reduced. Instead of three 25-bps rate cuts being discounted over the next year, there are now only two, and they are front-loaded.

FEDERAL RESERVE INTEREST RATE EXPECTATIONS (OCTOBER 25, 2019) (TABLE 1)

Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

According to overnight index swaps, market participants are currently discounting a 90% chance of no policy change at the October Fed meeting, up from 88% this time last week. Rate cut odds have risen meaningfully in recent months, having sat at 52% one-month ago. Additionally, there is now a 51% chance of a 25-bps rate cut at the January 2020 Fed meeting. After that, however, market participants only foresee a 35% chance of an additional policy move thereafter.

IG Client Sentiment Index: EUR/USD Rate Forecast (OCTOBER 25, 2019) (Chart 1)

Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

EUR/USD: Retail trader data shows 45.99% of traders are net-long with the ratio of traders short to long at 1.17 to 1. The number of traders net-long is 6.98% higher than yesterday and 11.83% higher from last week, while the number of traders net-short is 4.38% lower than yesterday and 5.07% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse lower despite the fact traders remain net-short.

BOJ Ready to Enter Race to the Bottom

The Japanese economy remains on weak footing, with low rates of growth and inflation. With the sales tax coming to bite consumption, growth prospects have dwindled further. Against the backdrop of reduced macroeconomic tensions elsewhere, however, the Japanese Yen has suffered in October as risk appetite as reduced demand for the safe haven currency.

Bank of Japan Interest Rate Expectations (OCTOBER 25, 2019) (Table 2)

Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

According to overnight index swaps, there is a 70% chance that the BOJ joins the “race to the bottom” among G10 currencies’ central banks with a 10-bps rate cut this week. Rate cut odds have risen sharply in the past week, from 35% to 70%. To this end, the BOJ may just be getting its rate cut engine revved up: markets are pricing in a 63% chance of a 10-bps rate cut at the March 2020 BOJ meeting.

IG Client Sentiment Index: USD/JPY Rate Forecast (OCTOBER 25, 2019) (Chart 2)

Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

USD/JPY: Retail trader data shows 48.60% of traders are net-long with the ratio of traders short to long at 1.06 to 1. The number of traders net-long is 0.93% lower than yesterday and 6.52% higher from last week, while the number of traders net-short is 0.56% higher than yesterday and 3.75% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.

No Rate Moves for BOC Through September 2020

The Canadian economy continues to show signs of resiliency in the face of an uncertain global growth environment, with USD/CAD quickly approaching its yearly lows even though its commodity currency brethren have recently hit yearly lows versus the US Dollar. Stability in oil prices could with a relaxation in tensions between the US and China are catering to a reduction in Bank of Canada rate cut expectations.

Bank of Canada Interest Rate Expectations (OCTOBER 25, 2019) (Table 2)

Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

According to overnight index swaps, the chance of a BOC rate cut this year has been effectively eliminated: there is a 0% chance of a cut at the October meeting, and only a 14% chance through the end of the year. Last week there was a 4% chance of a 25-bps rate cut at the October BOC meeting. Rates markets are expecting a quiet BOC for the foreseeable future: no rate moves are priced-in through September 2020.

IG Client Sentiment Index: USD/CAD Rate Forecast (OCTOBER 25, 2019) (Chart 2)

Rate Cuts Due from the Fed and BOJ, BOC Cut Odds Plummet - Central Bank Watch

USD/CAD: Retail trader data shows 70.01% of traders are net-long with the ratio of traders long to short at 2.33 to 1. The number of traders net-long is 12.18% higher than yesterday and 34.21% higher from last week, while the number of traders net-short is 3.73% lower than yesterday and 15.98% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

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

DISCLOSURES

News & Analysis at your fingertips.