EURUSD Curbed at Resistance, NFP Unlikely to Spark Volatility - US Market Open

2019-01-31 14:30:00

MARKET DEVELOPMENT – USD SOFTER ON DOVISH FED, JPY IN DEMAND

USD: The US Dollar is softer, alongside US yields following yesterday’s dovish FOMC meeting. The wait-and-see stance is in effect with the Powell and Co. signalling that they will be patient with regard to rate hikes. More importantly, the Fed confirmed that they will be flexible with their balance sheet normalisation process. While the market outlook is uncertain, if there is anything that is certain, is that global markets are now dictating Fed policy. High-beta FX (AUD, NZD) and EMFX remain supported on Fed policy U-Turn.

EUR: Advances in the Euro has been curbed by the 1.15 handle to trade relatively flat, with the currency largely undeterred by another slew of soft economic data points. Italy’s Q4 GDP confirmed that they have moved into a technical recession, albeit to no-one’s surprise. However, this may soon begin to re-ignite concerns over the budget deficit and Italy’s optimistic growth forecasts. Elsewhere, sizeable FX options are likely to keep the Euro relatively contained, while option markets imply that tomorrow’s NFP will lack of volatility with breakeven straddles at 41pips.

JPY: The JPY among the outperformers this morning with USDJPY making a break below 109.00, while cross selling in major pairs against the JPY has provided a further bid in the safe-haven currency. Eyes now are on for a test of 108.00.

Gold: Gold back in favour following the aforementioned Fed capitulation, while central bank buying also underpinned the bullish outlook for the precious metal. Thus far, the May 2018 high at $1325 is proving tough to crack for now. Longer term targets are for a move towards $1360.