USD Dips as the Fed May Mull Pause on Rate Hike Cycle - US Market Open
MARKET DEVELOPMENT – USD DIPS AMID TALK OF FED LOOKING TO PAUSE RATE HIKE CYCLE
USD: The risk on sentiment has put a dent in the US Dollar, which is trading modestly lower against its major counterparts, particularly high beta FX currencies (AUD, NZD), with the exception of the Japanese Yen, which is underperforming. Alongside this, a report circulating that the Federal Reserve could consider pausing its rate hike cycle by spring has provided a further lift to equity markets, at the expense of the USD. That said, this comes in the context that recent commentary from Fed officials have been leaning on the more cautious side, which in turn has reigned in rate hike expectations from the Federal Reserve. Latest FFR futures imply 56bps worth of tightening by the end of next year, compared to the Fed’s dot plot projection currently signalling 100bps. Elsewhere, another spring to the equity bounce has been provided by reports that China trade hawk, Peter Navarro, may be excluded from talks between President Trump and Xi at the upcoming G20 summit.
EUR: The Euro has been somewhat resilient despite the European Commission rejecting Italy’s budget. The EC also stated that disciplinary procedures should be adopted against Italy for excessive debt (what happens next). However, with rate hike expectations continuing to drop off, tighter spreads between the US and Core EU members has provided a lift for the Euro, which sits above the 1.14 handle. Eyes will be on tomorrow’s ECB meeting minutes.
Crude Oil: The 25-30% in major oil benchmarks has been praised by President Trump, who would also like to see even lower oil prices. However, given the near enough 6% drop in the oil complex yesterday, prices are seeing a modest lift, which has also been supported by yesterday’s API report, showing a surprise drawdown in US stockpiles. Oil traders will be looking for confirmation at today’s EIA report whereby a drop-in oil inventories would end the run of consecutive weekly stockpile increases (current streak is 8). Elsewhere, reports from the Kremlin noted that Russia were currently monitoring developments in the oil market and will meet with Saudi’s MBS at the G20 summit.
Data as of 1325GMT
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EURUSD: Data shows 50.6% of traders are net-long with the ratio of traders long to short at 1.02 to 1. The number of traders net-long is 3.3% higher than yesterday and 15.8% lower from last week, while the number of traders net-short is 10.0% lower than yesterday and 26.8% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
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--- Written by Justin McQueen, Market Analyst
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