The Week That Was…
An extremely quiet start to the week ended in the loudest of fashion as the dovish FOMC meeting sent USD plummeting, only to instantly reverse it’s losses. The Fed have removed “patient” from their language but suggested that the pace of rate-hikes will be slower than expected although data dependant.
In the wake of this meeting we saw large liquidation of USD long positions and indeed many Banks have further liquidated USD long positions today suggesting scope for a deeper USD reversal. However, current market pricings are still well within recent trends and it will take a grind higher next week to signal whether or not a proper correction is underway.
- USD The dovish FOMC meeting saw USD longs unwind on Wednesday with the Fed suggesting that the pace of rate-hikes will be slower though data dependant. Softer data recently is turning market expectations back towards a September lift-off and as such there is scope for a deeper USD retracement. Over the medium term however the USD will continue to strengthen as rate-hikes move closer and any strong data will add acute strengthening.
- EUR Saw a firmer week with USD long short covering providing a bounce into the dovish FOMC meeting which saw EURUSD spike higher by over 400 pips only to reverse immediately. Ending the week in positive territory there is a chance that we could see some short term reprieve in EUR downside with signs of European reflation and USD positioning adjustment, but over the medium term the ECB’s QE program will lower yields in Europe and take EUR lower once more.
- JPY Conceded all gains made on the FOMC release and indeed ends the week pretty much flat. There is some scope for JPY to benefit over the short term with the materialisation of a deeper USD pullback. The BoJ is currently adopting a hand-off approach and there are reflationary signs out of Japan. The Nikkei however continues to push into fresh highs and should see USDJPY supported
- GBP Ends the week around flat after being subjected to the same FOMC induced whipsaw seen across the USD basket. Any retracement higher in GBP should be viewed as a selling opportunity with recent data coming in soft and political risks stemming from the UK election gaining prominence. There is a chance that next week’s CPI print will come in weak also given that there remain low price rises in the retail sector and wages still aren’t rising in line with expectations.
- CAD A more positive end to the week for the beleaguered Canadian currency which has been hammered recently due to the decline in oil prices. CPI data came in unchanged YoY but rose 0.4% MoM. Over the medium term, USD strengthening should re-emerge and there is also the prospect that loans made by the Canadian Govt to the oil sector could become an issue.
- AUD Ends just inside positive territory on the back of the FOMC spike. Falling commodity prices have weighed on the Australian currency and should continue to do so as questions grow around global growth. given its high-beta status, AUD should benefit from USD easing over the short term but expect downward continuation medium term and be aware of US data which will create short opportunities on upside prints.
EURUSD Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bearish
GBPUSD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bearish
USDJPY: Short Term (1-3 Days) : Neutral – Medium Term (1-3 Weeks) Bullish
USDCAD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish
AUDUSD: Short Term (1-3 Days) : Neutral – Medium Term (1-3 Weeks) Bearish
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