What Happened on wild Wednesday > Top 3?
>Fed raises rates, Tells the market: “More to come”.
>US Inflation data hits & Disappoints. Undermines Fed Speaking of more Rate Hikes in 2017.
>Wild swings in EURUSD & USDJPY as we called, on the back of USD selloff, then rally.
Outlook / Fast Summary
+Aussie Jobs data a solid number. Just recaptured the 7600 handle
+Bank Of England & Swiss National Bank tonight. Sterling seems happy at 1.2750
+Traders are digesting the Janet Yellen speech regarding forward guidance.
+Bank Of Japan tomorrow. USDJPY 109.50
Data & Event Risk? :
- (GBP) Retail Sales & Bank Of England- 30pm & 9pm Sydney
- (CHF) Swiss National Bank- 30pm Sydney
- (USD) US Jobless data – 30pm Sydney
USDX: 96.90
USD Index jolted lower on the soft Retail Sales & more importantly, the soft CPI number last night – before the Fed release.
USDX dipped as low as 96.30 before spiking back to 97.09 on the US rate hike of 25 bps.
We are still struggling to break out of recent ranges for the Dollar Index as the Fed speech essentially talked up more rate hikes for the remainder of 2017, but added disclaimers in relation data dependent forward guidance, as always. That noted, the softer CPI means we have the possibility of USD weakness to come.
USDJPY: 109.56
Dollar-Yen took an tumble from around 110.30 down to lows of 108.80 as a great indicator of how powerful the Soft CPI data was to unwinding of Long USD trades.
I can see more pain ahead for USDJPY even though not too many surprises are expected tomorrow from the Bank Of Japan (BOJ).
A drift back to low 109 handle very likely, and USDJPY will trade very reactively to soft USD data such as Jobless claims tonight.
EURUSD: 1.1220
The Euro saw wild swings yesterday.
The soft CPI data caused a spike to 1.1300 and looked like a sign of what was to come for the night, until Janet Yellen was quite hawkish regarding the outlook for USD and the Feds balance sheet.
Euro was Offered swiftly from 1.1300 to 1.1200 during her press conference and has since drifted back to 1.1220 in early Asian dealing.
GBPUSD: 1.2750
Sterling had a very restrained trading range last night.
Sterling only spiked 50 pips higher against the Greenback when the Soft UC CPI data hit the news wires in the US session.
GBPUSD looks quite unsure of itself as it has since traded back to where we were this time yesterday – Holding firmly around 1.2750.
What can the Bank Of England (BOE) meeting deliver tonight to change the tight trading range?
I would say, not much but I can see a move towards the 1.2800 handle as the UK CPI data was solid this week and I am not sure that I trust the “Fed promises of more”.
AUDUSD: 0.7615
The Aussie saw a tick up this morning in early Asian session trade as Jobs data was a solid beat of expectations.
New Jobs added was a stellar 42k and the headline Unemployment rate dropped from 5.7% to 5.5%, naturally being great news for the AUD.
Yesterday’s China Industrial Production number was OK so we see 7650 level hold for a little while.
The Iron Ore prices are still off, trading under $55 USD/Tn which means that there is a disconnect between the AUD bullish swing on jobs data versus the mining story.
There certainly seems to be some heavy sellers holding Aussie back below 7650 but I will not be surprised if we see a move higher in the London or US sessions tonight.
Next Tuesday we get the RBA’s meeting minutes from last fortnight’s meeting, so I expect that may drag the Aussie back to Earth a little.
I am still short this pair looking for USD selloffs to reverse, so any strong data points for USD will jolt AUDUSD back into the 7500’s.
NZDUSD: 0.7230
The kiwi traded to a fresh 3-month high last night around 7320 before this morning’s Fed Speech plus the Soft GDP data for NZ slammed the kiwi back to 7230.
Another pair seeing wild swings cast between local data leading into next week’s RBNZ announcement (on Thursday).
I would not be surprised if a small correction kicks the NZDUSD back into 7180 / 7200 holding pattern.
USDCAD: 1.3240
USDCAD has been a big mover this week with a sustained selloff to new lows into 1.3165.
Oil is battling at the $45 marker and the Canadian fundamentals got a huge gearchange to Bullish recently on speculation that they are tipped to move their interest rates higher.
I favour further downside in USDCAD on the back of uncertainty that the Fed will follow through coupled with potential CAD rate hike.
VIX:10.64
Volatility Index up slightly on the day yesterday but still very low sub 11.
The US data points in the coming weeks will be the catalyst for a higher VIX and bigger breakout trading ranges, but in the meantime markets are digesting the Feds commentary from this morning as the Treasury markets are mostly unchanged.
GOLD: $1,265.58
Gold took off higher when US CPI tanked last night, then did a U-turn on a Hawkish bias with Janet Yellen’s comments.
The 1265 area for Gold has become a very common pattern level of late and a breakout is unlikely until we get key US data to jolt the USD sentiment.
Oil (WTI) : $44.76
Oil saw a sharp reset lower in yesterday’s trade.
Here is a great quote from my Reuters terminal to explain why Oil prices slid lower:
“Crude oil prices slumped nearly 4 percent to their lowest close in seven months on Wednesday, hit by an unexpected large build in gasoline inventories and an international outlook that suggests a big increase in supply in the coming year.”
Macro Themes in Play
- Markets are hearing from the Fed that another rate hike in 2017 is in play, however this was undermined by the soft CPI headline data last night.
That is the dominant market theme creating an odd situation where Traders again are asked to Trust the “Fed Speak”.
Volatility still Low but markets are nimble to & sensitive to market theme changes.
