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
Bearish
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
GBP/USD
Bullish
USD/JPY
Bearish
Gold
Bearish
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Real Time News
  • RT @MWMozee: Also, US reports 5th case of #coronavirus US stock futures: $COMP falls 1.3% $DJIA down 0.8% $SPX drops 0.9% Hong Kong's…
  • The ISM manufacturing index plays an important role in forex trading, with ISM data influencing currency prices globally. Find out about the recent history of ISM data, how to track it, and how to trade its release here: https://t.co/MZtBh88nOv https://t.co/RMxpXvpa61
  • RT @arwaib: BREAKING: Jets flying over Baghdad right now after reports of expected #US response to earlier rocket attacks that slammed in e…
  • RT @ForexLive: China confirmed #coronavirus cases: Jan 17: 41 Jan 19: 62 Jan 20: 201 Jan 21: 291 Jan 22: 440 Jan…
  • #JPY, #USD #gold up with bond futures, #crudeoil down with S&P 500 stock futures as #coronarovirus fears grip markets at weekly trading open. Backstory here - https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2020/01/26/Japanese-Yen-US-Dollar-May-Gap-Higher-as-Week-Starts-on-Virus-Fears.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Spivak&utm_campaign=twr (via @ddubrovskyFX) https://t.co/bq96FHKBNs
  • RT @conorsen: @selling_theta @LJKawa https://t.co/vVfmLgHd9b
  • RT @iv_technicals: So you thought it was all contained, right?! Mhm. Cool stuff. https://t.co/PShm600IPS
  • RT @globaltimesnews: #Hubei Province reported 371 new cases of #WuhanCoronavirus and 24 new deaths on Jan 26 local time; total infection ca…
  • What is market volatility and what does a market event volatility look like? Find out from @PaulRobinsonFX here: https://t.co/vg7w10la3j https://t.co/QpD4VP4vDc
  • The last time the $USDJPY suffered this large of a bearish gap in a bearish slide (this one still nascent), was back in May: https://t.co/hTxfyVFiox
Global Rate Cut Cycle Looks Finished for Now - Central Bank Watch

Global Rate Cut Cycle Looks Finished for Now - Central Bank Watch

2019-12-05 19:25:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:

Central Bank Watch Overview:

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

Traders Can't Escape US-China Trade War Headlines

As the calendar winds down, the news wire is heating up. Conflicting signals on the US-China trade war in recent days have injected a decent amount of volatility back into financial market, leading to weakness across the board for the US Dollar at the start of December.

It is no longer the case that the US Dollar has shifting central bank rate pricing as a bullish catalyst. Other G10 currencies’ central banks have seen their interest rate cut odds pullback meaningfully at the same time. In light of this, pairs like EUR/USD, USD/CAD, and USD/JPY have seen meaningful shifts in positioning in recent days.

ECB Rate Cut Cycle on Pause as Lagarde Repositions

The European Central Bank is in a holding period. New ECB President Christine Lagarde is using the early months of her tenure to try and clear divisions among ECB Governing Council members. The schism exists as a result of former ECB President Mario Draghi ramming through his easing package at the September ECB meeting. As policymakers search for a new consensus, it seems likely that the ECB will remain on the sidelines through much of 2020.

EUROPEAN CENTRAL BANK INTEREST RATE EXPECTATIONS (DECEMBER 5, 2019) (TABLE 1)

ecb rate expectations, ecb rate expectations, european central bank rate cut odds, ecb rate cut odds

According to Eurozone overnight index swaps, traders are convinced that the period of recalibration by new ECB President Lagarde will take several months: there is only a 17% chance of a rate move through March 2020. Accordingly, there are still no rates moves discounted through October 2020; now, there is a 44% chance of 10-bps rate cut in October 2020 as well as a 7% chance of a 10-bps rate hike.

IG Client Sentiment Index: EUR/USD Rate Forecast (DECEMBER 5, 2019) (Chart 1)

igcs, ig client sentiment index, igcs eur/usd, eur/usd rate chart, eur/usd rate forecast, eur/usd technical analysis

EUR/USD: Retail trader data shows 44.4% of traders are net-long with the ratio of traders short to long at 1.25 to 1. The percentage of traders net-long is now its lowest since Nov 01 when EUR/USD traded near 1.11648. The number of traders net-long is 7.3% lower than yesterday and 31.2% lower from last week, while the number of traders net-short is 15.8% higher than yesterday and 31.6% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD rates may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD-bullish contrarian trading bias.

If the BOJ Cuts Rates, It Won’t be for a While

The Bank of Japan was considered to be on the verge of cutting rates just weeks ago, but that decision appears to be nixed for the time being. With fiscal policymakers approving a $122 billion stimulus package today to help support sagging Japanese growth, it appears that the BOJ will save its bullets for another battle. Both BOJ Governor Haruko Kuroda and member Yutaka Harada have said in recent days that the current BOJ is sufficient at present time.

Bank of Japan Interest Rate Expectations (DECEMBER 5, 2019) (Table 2)

boj rate expectations, jpy rate expectations, bank of japan rate cut odds, boj rate cut odds, boj rate hike odds

According to Japan overnight index swaps, there is a 78% chance that the BOJ keeps its main rate on hold at -0.10% at its final meeting of the year; one-month ago, there was a 62% chance of no change in rates; and six-months ago, there was a 56% chance of no change in rates. Rates markets are rather docile for the foreseeable future; if there is going to be a rate move by the BOJ, markets are discounting July 2020 as the most likely period (50% implied probability).

IG Client Sentiment Index: USD/JPY Rate Forecast (DECEMBER 5, 2019) (Chart 2)

usd/jpy rate forecast, usd/jpy technical analysis, usd/jpy rate chart, usd/jpy chart, usd/jpy rate

USDJPY: Retail trader data shows 51.9% of traders are net-long with the ratio of traders long to short at 1.08 to 1. The number of traders net-long is 1.9% lower than yesterday and 15.2% higher from last week, while the number of traders net-short is 8.5% higher than yesterday and 24.3% lower from last week.

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

BOC Rate Cut Pricing Eliminated Again

With the view that the global economy is weathering the US-China trade war, BOC policymakers appear to be pushing back on the market’s perspective that more easing is coming shortly. Prior to the October BOC meeting, there were no interest rate moves discounted over the following 12-months. At their peak in November, rates markets were pricing in a 25-bps rate cut from the BOC as early as April 2020.

Bank of Canada Rate Expectations (DECEMBER 5, 2019) (Table 3)

boc rate expectations, cad rate expectations, bank of canada rate cut odds, boc rate cut odds, boc rate hike odds

According to Canada overnight index swaps, the chance of a BOC rate cut in early-2020 has fallen further in the wake of the December BOC meeting. Immediately afterwards, there was a 52% chance of a 25-bps rate cut at the October 2020 BOC meeting, a dramatic collapse from the week prior, when April 2020 was the favored timing for the next rate cut. Now, there are no rate moves discounted through October 2020.

IG Client Sentiment Index: USD/CAD Rate Forecast (DECEMBER 5, 2019) (Chart 3)

igcs, ig client sentiment index, igcs usd/cad, usd/cad rate chart, usd/cad rate forecast, usd/cad technical analysis

USDCAD: Retail trader data shows 46.7% of traders are net-long with the ratio of traders short to long at 1.14 to 1. In fact, traders have remained net-short since Nov 08 when USDCAD traded near 1.31538; price has moved 0.1% higher since then. The number of traders net-long is 57.8% higher than yesterday and 32.7% higher from last week, while the number of traders net-short is 37.2% lower than yesterday and 35.4% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD 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 USDCAD price trend may soon reverse lower despite the fact traders remain net-short.

Read more: US Dollar Forecast: Major Topping Potential in Play? Key Levels for DXY Index

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.