Currency Markets Gyrate Amid Pre-Positioning for Fed Rate Hike
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Currency markets are in retracement mode to start the trading week. The Swiss Franc, Euro, British Pound and Japanese Yen are trading lower having outperformed on Friday while the Australian and Canadian Dollars are in recovery mode having been the weakest over the same period. Risk sentiment trends have done an about-face as well: S&P 500 futures are trading sharply higher after the benchmark stock index suffered the worst drop in over two months to close last week.
Price action appears to reflect pre-positioning as markets swing back toward neutral ahead of this week’s much-anticipated FOMC monetary policy announcement. Fed Funds futures suggest markets widely expect Fed Chair Yellen and company to deliver the first post-QE interest rate hike, nudging the target range for the benchmark lending rate higher by 25 basis points into the 0.25-0.50 percent territory. That may prove negative for sentiment.
The Fed’s aggressive easing over the past seven years slashed returns on safer assets and encouraged a reach for yield outward along the risk spectrum. The growing proximity of stimulus withdrawal since mid-2014 might have been expected to begin reversing this dynamic. Various false starts failed gain traction however even as the US Dollar embarked on a long-lasting rally to reflect the looming policy shift.
This warns that a period of portfolio readjustment is still pending and may be triggered in earnest once the rate hike is finally a reality. The ensuing risk aversion may bode ill for the sentiment-linked Australian and New Zealand Dollars, sending them downward alongside stock prices, while boosting funding currencies like the Euro and the Japanese Yen. Within that context, Friday’s moves may have amounted to an early preview of the markets’ disposition, while today’s retracement marks an unwillingness to fully pre-commit before speculation turns into fact.
|21:30||NZD||Performance Services Index (NOV)||59.8||-||56.5|
|23:50||JPY||Tankan Large Mfg Index (4Q)||12||11||12|
|23:50||JPY||Tankan Large Mfg Outlook (4Q)||7||11||10|
|23:50||JPY||Tankan Large Non-Mfg Index (4Q)||25||23||25|
|23:50||JPY||Tankan Large Non-Mfg Outlook (4Q)||18||22||19|
|23:50||JPY||Tankan Large All Industry Capex (4Q)||10.8%||10.2%||10.9%|
|23:50||JPY||Tankan Small Mfg Index (4Q)||-1|
|23:50||JPY||Tankan Small Mfg Outlook (4Q)||-4||-2||-2|
|23:50||JPY||Tankan Small Non-Mfg Index (4Q)||5||2||3|
|23:50||JPY||Tankan Small Non-Mfg Outlook (4Q)||1|
|00:01||GBP||Rightmove House Prices (MoM) (DEC)||-1.1%||-||-1.3%|
|00:01||GBP||Rightmove House Prices (YoY) (DEC)||7.4%||-||6.2%|
|00:30||AUD||Credit Card Purchases (A$) (OCT)||24.8B||-||24.8B|
|00:30||AUD||Credit Card Balances (A$) (OCT)||50.6B||-||50.8B|
|04:00||JPY||Tokyo Condominium Sales (YoY) (NOV)||4.8%||-||-6.5%|
|04:30||JPY||Industrial Production (MoM) (OCT F)||1.4%||-||1.4%|
|04:30||JPY||Industrial Production (YoY) (OCT F)||-1.4%||-||-1.4%|
|04:30||JPY||Capacity Utilization (MoM) (OCT)||1.3%||-||1.5%|
|04:30||JPY||Tertiary Industry Index (MoM) (OCT)||0.9%||0.5%||-0.4%|
|08:00||CHF||Total Sight Deposits (DEC 11)||-||467.5B||Low|
|08:00||CHF||Domestic Sight Deposits (DEC 11)||-||397.1B||Low|
|10:00||EUR||Eurozone Industrial Production (MoM) (OCT)||0.3%||-0.3%||Medium|
|10:00||EUR||Eurozone Industrial Production (YoY) (OCT)||1.4%||1.7%||Medium|
|10:00||EUR||ECB's Nowotny Briefs IMF on Article 4 Mission||-||-||Low|
|11:00||EUR||ECB’s President Draghi Speaks in Bologna, Italy||-||-||Medium|
|CCY||Supp 3||Supp 2||Supp 1||Pivot Point||Res 1||Res 2||Res 3|
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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