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
GBP/USD
Bearish
USD/JPY
Bullish
Gold
Mixed
Oil - US Crude
Bullish
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
  • Japan 20-year bond bid/cover ratio at 3.99 (BBG)
  • My trading video for today: 'Nasdaq Leads the Uneven Risk Advance, $USDJPY Tears Attention from $EURUSD' https://www.dailyfx.com/forex/video/daily_news_report/2020/02/20/Nasdaq-Leads-the-Uneven-Risk-Advance-USDJPY-Tears-Attention-from-EURUSD-.html?ref-author=Kicklighter&CHID=9&QPID=917719
  • Read this thread. https://t.co/T7MdCif6cI
  • Major risk aversion permeating APAC markets with the Japanese Yen surging against the commodity-linked #NZD and #AUD with Asian equities generally in red https://t.co/u4eK8CUoWb
  • Commodities Update: As of 03:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.26% Silver: 0.02% Gold: -0.05% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/EYr0Prx7LL
  • The $NZD may default back to the dominant downtrend against its US counterpart after a seemingly spirited recovery has ground to a halt. Get your market update from @IlyaSpivak here:https://t.co/LX4J53SnHQ https://t.co/P7X6ziaqbF
  • Forex Update: As of 03:00, these are your best and worst performers based on the London trading schedule: 🇨🇭CHF: 0.05% 🇪🇺EUR: -0.06% 🇯🇵JPY: -0.08% 🇬🇧GBP: -0.12% 🇳🇿NZD: -0.43% 🇦🇺AUD: -0.58% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/pmjfoHUepL
  • S&P: #Coronavirus impact may double questionable China bank loans -BBG
  • Japan said 2 people who were on the cruise ship off Yokohama died from the #coronavirus, bringing total domestic fatalities from the Wuhan virus to 3 -BBG citing NHK
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.26%, while traders in France 40 are at opposite extremes with 85.30%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/2ReikABM3V
Fed Decision Looms But Rate Outlook Little Changed

Fed Decision Looms But Rate Outlook Little Changed

2011-09-20 23:45:00
John Kicklighter, Chief Currency Strategist
Share:
  • Fed Decision Looms But Rate Outlook Little Changed
  • ECB Rate Expectations May Be Bending to Financial Crisis
  • RBA Minutes Can’t Curb Aggressive Cut Outlook, Onto the BoE Minutes
Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_43.png, Fed Decision Looms But Rate Outlook Little Changed

Rate Expectations Commentary

We are at a turning point for the markets this week as major fundamental themes threaten sweep away the fog of contradictory projections and align expectations for risk trends, market conditions and rate forecasts. Key is the upcoming FOMC rate decision. While the central bank will not change its benchmark rate, there is heavy speculation that the US central bank will increase its stimulus effort in an effort to prevent a further slowing of the economy and curb growing financial troubles. The implications that this has on the global market can be quite profound depending on the effort taken by the group. An outright, QE3 program (a significant increase in purchases in Treasuries, Agency Debt, Mortgage-Backed securities or other assets) would have the greatest impact by boosting the assets that have the most direct influence on economic activity (the government bond yields) and the most troubled positions that large banks are still holding.

A strong increase in risk appetite trends would be a likely outcome under such guidance; but this is not a likely conclusion itself. More likely, the central bank will engage in what is being termed “Operation Twist” in which they shift out of short-dated Treasuries and assets to purchases longer-dated alternatives. The objective here is to lower the cost of productive loans that would do more to encourage growth at the consumer level. The question that we should be asking is whether this option would lift risk trends. If it boost risk appetite trends, those currencies with higher yields will find a flush of speculative capital while the low-yield alternatives take a hit. Furthermore, an improved outlook for economic activity (for an individual economy or globally) leads to a tangible jump in rate expectations. That said, the Operation Twist option could very well lead to a short-term jump in risk trends; but it would unlikely curb the negative shift in risk trends that we have seen sweep over all the majors. That being the case, we could see a brief correction in a larger shift away from carry as the outlook maintains its negative bearing.

Other notables that we should take into account, the RBA minutes released yesterday found the Australian bank suggesting that rate expectations are far too negative for what data currently suggests. This would normally be taken as a hawkish sign; but the 12-month rate forecast for the Aussie dollar hasn’t let up with 138 bps of cuts expected over the coming year and a 64 percent probability of a cut at the next meeting. Reality will eventually set in; but it may take events like the announcement of another hold to shake the doves/bears.

In the upcoming session, we’ll be looking to the Bank of England minutes; which could very well signal to the market a greater probability of additional bond purchases in the near future. MPC member Adam Posen has called for this expansionary step before; but he has been alone in that minority. If there is greater acceptance of this call, expect the British pound to take a quick hit that leads into a more gradual decline as holdouts fold on the sterling representing the ideal reflection of austerity.

Perhaps one of the most interesting changes over the past week, is the rapid growth in expectations for an ECB rate cut at the next policy meeting (October 6th). We have seen dovish speculation ramp up relatively quickly against the backdrop of a worsening financial situation in Europe – a shift that many believe will require monetary policy to offer much-needed support. Currently, the market is pricing a 114 percent probability of a 25 basis point rate cut (that is a near certainty of a 25 bps move and modest speculation of a 50 bps cut). This will be something to watch as it will be another thing that can severely undermine the euro’s strength.

EURUSD

Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_16.png, Fed Decision Looms But Rate Outlook Little Changed

GBPUSD

Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_19.png, Fed Decision Looms But Rate Outlook Little Changed

USDJPY

Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_22.png, Fed Decision Looms But Rate Outlook Little Changed

USDCHF

Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_25.png, Fed Decision Looms But Rate Outlook Little Changed

USDCAD

Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_28.png, Fed Decision Looms But Rate Outlook Little Changed

AUDUSD

Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_31.png, Fed Decision Looms But Rate Outlook Little Changed

NZDUSD

Fed_Decision_Looms_But_Rate_Outlook_Little_Changed_body_Picture_34.png, Fed Decision Looms But Rate Outlook Little Changed

Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com

Follow John on twitter at http://www.twitter.com/JohnKicklighter

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

DISCLOSURES

News & Analysis at your fingertips.