Posted on: 27 January 2016, by: Pepperstone Support, category: Market Review
Risk on with the rally holding on a day which saw heavy volumes in the G10 commodity and EM FX bloc. WTI continued to post large percentage moves rallying up to a high of 32.50 from opening 29.50 in early London but the eod API inventory data saw a massive build of 11.4mln bbls pressuring prices back to around 30.50. Seems short covering was cited as the major reason behind the day’s rally while headlines pointed to Iraq’s oil minister saying Saudi and Russia seem more flexible about oil output cuts.
Meanwhile, EURUSD consolidated 1.0820/70, while USDJPY met resistance again ahead of 118.80/60.
CHF was the focus of the funder bloc as EURCHF traded to the highest level since the SNB pulled the peg. For context, volumes in EURUSD were down roughly -15%, USDJPY was flat and EURCHF, 150% the recent average. Not surprisingly, the rally in EURCHF sparked questions as to whether or not the SNB is in the market. Data-wise, the Swiss trade surplus narrowed more than expected to CHF2.54bn in December, undershooting the CHF2.90bn forecasted. This had no impact.
In early London, USDJPY was the most traded alongside of demand for GBP, AUD, NZD and CHF. Anticipation remains high for this week’s BoJ meeting. Economic Minister Amari joined the chorus of leaders with opinions in late NY trading. He wouldn’t comment directly on the chance of additional QE this week but earned that unlike the ECB, the BoJ doesn’t signal monetary easing in advance. FT also published a “leak” article with no clear sources. "BoJ officials see room to increase the pace of their asset purchases from Y80tn a year, but worry that if they do so while also ruling out negative interest rates, markets will believe they have run out of options," reports the FT. "The fundamental reason for the BoJ’s concern is that Japan has a much larger asset purchase program than the ECB, or other countries with negative rates, such as Switzerland and Denmark."
USDCAD market volumes were much higher than average throughout the morning, with leveraged names being the primary drivers of activity. The pair was net bought until oil extended gains after the NY open.
GBP rebounded broadly. Support for GBPUSD looks carved out from 1.41/42 and from here, resistance at 1.4450/1.4500 is most watched among our teams. EURGBP has dipped back towards 0.7550.
The RBNZ decision will follow the FOMC. Our NY head spot trader believes the market is too dovish. “To be clear, I think the RBNZ will retain their soft easing bias, but pricing for March specifically (14bps of cuts) is way too dovish,” he says. Click here to read four reasons why the RBNZ could disappoint those dovish expectations.
AUDUSD is back above 0.7000, with Australian CPI serving as the next major domestic event. Since the CPI often surprises in the same direction as that in NZ, this means that AUD could underperform some risk currencies on further stabilization in sentiment.
US data was positive on Tuesday – especially confidence figures for January. Consumer confidence rose to 98.1 from 96.3 in December. All of the gains were in expectations of activity in the next six months. The number of people expressing confidence in business conditions increased, along with expectations for employment and income. Buying plans for autos, homes, and major appliances increased as well.
The FOMC Statement this Wednesday will convey expectations and confidence that the US economy broadly remains on track, but is not meant to give a big signal at a non-Press Conference FOMC. Fed funds futures now only price in a single hike over the next 12 months so the risk is that FOMC confidence is viewed as hawkish, given how data and global asset markets have behaved the last couple of weeks. This would be USD positive against G5