Posted on: 24 March 2016, by: Pepperstone Support, category: Market Review
The USD continues to bounce back from the post-FOMC lows on the back of the broad risk-off sentiment and more hawkish Fed speaker comments. The pre-holidays profit taking have probably helped the greenback too.
St Louis Fed President Bullard (voter) has stuck to a slightly hawkish in an interview with Bloomberg.
He thinks an April hike is possible, as it “didn't look like we were that far off our path at the March meeting.”
He thinks the jobless rate may fall below NAIRU and inflation will overshoot somewhat in the relatively near term, which might cause more rapid rate hikes later on.
He is increasingly concerned about the forward guidance given through the dot plot, saying the FOMC should react to data meeting by meeting. Bullard adds he has even ‘thought about dropping out unilaterally from the whole exercise’.
There is now some speculation on April, as Bullard adds to the relatively optimistic Fed rhetoric this week from Lacker, Williams, Lockhart, andEvans. Focus now turns to Fed Chair Yellen who will be speaking at the Economic Club of New York next Tuesday at 11:30 EST, which could give further clarity on the matter.
Markets seem to have calmed down as we approach the holiday long weekend, and volumes are much lower than yesterday.
Net flows have been contrary to price action for most of the London session. We have seen significant USD selling, mainly against JPY, EUR and GBP.
USDJPY traded higher even though bond rallied and risk assets sold off.
The latest DoE weekly inventory shows a build of 9.36mn barrels for crude oil, much larger than the expected 2.48mn.
Initial reaction was muted, possibly as some of the bad news was already priced in post API and Cushing inventory showed a decent draw of -1.25mn versus 0.38mn forecast. However, WTI soon resumed the downward move and is down over 3% on the day.
Unsurprisingly oil currencies like CAD and RUB have sold off in tandem. USDCAD rallied by over 100pips to trade on a 1.32 handle, with resistance at 1.3289-1.3347.
GBP continues to trade with a heavy tone as the latest ICM poll flipped back to favor Brexit. It now shows 43% for Leave and 41% for Remain, and the poll was conducted before the Brussels attacks.
3m GBP and EUR contracts have rolled over the EU referendum; can clearly see how bid surfaces are for this date.
EURUSD has been grinding lower, in line with the broad USD move. ECB governing council member and Bundesbank President Weidmann remains skeptical of the ‘ultra-accommodative monetary policy’ in the Eurozone in an interview with a German paper.
IMF’s Zhu (Deputy Managing Director) has received China data that IMF requested and the fund will not be requesting more forex info. Looking ahead, we have the PBoC Governor Zhou speaking at the Boao Forum at 10:15 GMT.
The political crisis in Brazil continues to dominate USDBRL. The latest development is that Odebrecht, the company at the center of the graft probe has agreed to cooperate with authorities, and thus potentially incriminating more politicians. For Rouseff, this is only more bad news as the impeachment process begins.
Gold prices have tumbled today on the back of USD strength, falling from yesterday’s close of $1248 to under the key level of $1225.