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.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
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
Oil - US Crude
Mixed
Wall Street
Mixed
Gold
Mixed
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • Coronavirus continues to spread rapidly in the US and Latin America causing risk sentiment to falter despite ongoing economic recovery. Get your #currencies update from @HathornSabin here: https://t.co/RCQR6z77qY https://t.co/E2jzemH6bQ
  • The ASX 200 and AUD/JPY are at risk of losses as cases of Covid-19 continue to climb in Victoria, Australia’s second-most populous state. Get your #ASX market update from @DanielGMoss here: https://t.co/O0LNvhgsQo https://t.co/Xq2lDE6s1T
  • Risk performance disparity is front and center while systemic issues meet key event risk. My trading video for the week ahead; '#Dow, $EURUSD, $GBPUSD Breakout Levels and Events Next Week' https://www.dailyfx.com/forex/video/daily_news_report/2020/07/11/Dow-EURUSD-GBPUSD-Breakout-Levels-and-Events-Next-Week.html?ref-author=Kicklighter&QPID=917719&CHID=9 https://t.co/1Fp5OxRbiS
  • This week, EUR/USD rallied to a multi-week high. Will bulls keep leading the price next week? Get your #currencies update from @malkudsi here: https://t.co/zUozw703uC https://t.co/LIEcx52Xh0
  • The New Zealand Dollar is aiming higher, with NZD/USD eyeing fresh yearly highs while AUD/NZD may be carving out a bearish Head and Shoulders chart pattern. Get your $NZDUSD market update from @DanielGMoss here:https://t.co/osFxXvq5xF https://t.co/Uk2RhkEyQO
  • A plethora of UK data, however, external factors remain the key driver as GBP/USD edges towards 200DMA. Get your #currencies update from @JMcQueenFX here: https://t.co/bWJGyiUSpQ https://t.co/qAg8NrAZor
  • The Japanese #Yen may rise if a growing number of coronavirus cases around the world puts a premium on anti-risk assets. JPY’s gains may be amplified if corporate earnings fail to impress investors. Get your #currencies update from @ZabelinDimitri here: https://t.co/yP4revKq6J https://t.co/7smgRKspLU
  • The US Dollar index (DXY) may face range bound conditions over the coming days amid the failed attempt to test the June low (95.75). Get your #currencies update from @DavidJSong here: https://t.co/GsBcE6Z4G6 https://t.co/HIJ4vvcBIg
  • The Dow Jones could fall based on positioning signals, will the growth-linked Australian Dollar and Canadian Dollar follow? If so, what are the technical barriers ahead? Find out from @ddubrovskyFX here:https://t.co/yJrlR5C00P https://t.co/FzkIBlJLHG
  • Further gains in USD/IDR could be curbed as USD/PHP establishes a floor around 2017 lows. USD/MYR may fall next as USD/SGD fast approaches a key falling trend line.Get your #ASEAN currencies market update from @ddubrovskyFX here:https://t.co/9JgZm2n8Fl https://t.co/FeBuqJ64qB
FOMC Minutes See Growth, End of QE and Financial Risk

FOMC Minutes See Growth, End of QE and Financial Risk

2014-07-09 19:04:00
John Kicklighter, Chief Strategist
Share:

In the wake of the FOMC minutes from the June 17-18 policy meeting, the US dollar slipped against its major counterparts and the S&P 500 paced a rebound in ‘risk’-sensitive assets. This market reaction contradicts what we have come to expect from the connection between market performance and monetary policy. Through the swell of stimulus and QE-style programs, we have seen speculative appetite buoyed by the proliferation of such support programs and the local currency hurt by the subsequent swell in the money supply as well as a drop in rates. And yet, these minutes support the de-escalation of these exceptional programs, yet the response looks much like a vow of additional support was issued.

Below are a few of the noteworthy highlights in the transcript of the central bank’s last meeting:

  • Staff anticipates a ‘brisk’ rebound in 2Q GDP
  • Growth in second half of 2014 and through next two years expected to outpace 2013 and rise more quickly than potential
  • Generally agree that a $15 Bln Taper in October would end QE program so long as outlook holds
  • Supervisory measures should be applied to address excessive risk-taking and associated financial imbalances
  • Some Fed Officials considered investors are growing too complacent on financialrisks – a factor in market performance

On a fundamental basis, the known end of the QE3 program – designed to purchase Treasuries and MBS on a monthly basis to keep yields low – translates into a reduction in support for ‘risk taking’ within the financial markets. That would in turn insinuate investors, increasingly on their own in managing their exposure without the backstop of Fed support, would reduce some of their exposure. Yet, that is not the immediate reaction as we can see in equity indexes’ climb after the release.

Furthermore, the full Taper firms up a milestone that will further lead to the actual withdrawal of accommodation – in other words: rate hikes. That should in turn lift yields (the return for the currency) and the dollar. Yet, as we can see below, the USDollar extended its retreat following last week’s response to the strong employment report.

USDollar Daily Chart

FOMC Minutes See Growth, End of QE and Financial Risk

Charting Created by John Kicklighter usingMarketscope 2.0

For interest rate forecasts, we have seen a tepid response in short-term Treasury yields (which typically rise as rate and inflation expectations rise). The same is true of Fed Fund futures which are instruments specifically tailored towards hedging interest rate changes (see both below). Yet, this moderate response should not be considered a measure of doubt or contradiction. Rather, we have more likely priced in much of the spirit of this report from a monetary policy perspective.

The Taper – or halt to the open-ended stimulus regime – is a first step towards actual tightening. The consistency of the central bank’s reductions since December has led the market to linearly project an end to the program at that same time. There is similar feeling towards the projected rebound in GDP through 2Q and strength through the second half of 2014. Through these expectations, we have seen shorter-term yields have been trending higher for some time – ‘pricing in’ the eventuality of a hike. This is especially true of this particular set of minutes that follow up on the Fed’s quarterly meeting where they issued forecasts and Chairwoman Janet Yellen conducted a question-and-answer press conference.

FOMC Minutes See Growth, End of QE and Financial Risk

This particular report is not without market impact however. Over the medium-term, it reinforces the time frame of a change in monetary policy bearings. In particular, a first rate hike mid-2015 seems more likely. Yet, as we can see in the Fed Funds futures below, the market is still discounting their expectations for hikes. Though the end of 2015, the market sees a 0.78 percent benchmark rate versus the 1.12 percent average from the Fed’s forecast. At the close of 2016, it is 1.76 percent versus the Fed’s own 2.50 percent. There is plenty of reconciliation to be found here.

FOMC Minutes See Growth, End of QE and Financial Risk

On this front, one major consideration is the composition of the FOMC board that will be voting when the proposed time for the first hike comes around. The current assumption of the group is very vague with few actually offering up a clear-cut bias so early in the game.

FOMC Minutes See Growth, End of QE and Financial Risk

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

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

Sign up for John’s email distribution list, here.

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

DISCLOSURES

News & Analysis at your fingertips.