FX traders' Bohemian Rhapsody

Forex 5 minutes to read

Michael O’Neill

FX Trader, Loonieviews.net

Summary: Fed Chair Jerome Powell delivered his semi-annual Monetary Policy Report to the US Senate. Traders were left wondering “Is this the real life? Is this just fantasy?

Jerome Powell did not change his outlook. He repeated “While we view current economic conditions as healthy and the economic outlook as favourable, over the past few months we have seen some crosscurrents and conflicting signals. Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year. Growth has slowed in some major foreign economies, particularly China and Europe. And uncertainty is elevated around several unresolved government policy issues, including Brexit and ongoing trade negotiations.”

He also said, “Going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve.”

The comments were not anything new, leaving traders looking for news on the US/China trade front and humming “Scaramouch, Scaramouch will you do the fandango?”

FX markets may be suffering from “trade tweet fatigue”. The usual risk-on rallies that follow a presidential tweet are missing in action today. Yesterday, Trump tweeted “China Trade Deal (and more) in advanced stages. Relationship between our two Countries is very strong. I have therefore agreed to delay U.S. tariff hikes. Let’s see what happens?” A few hours later he fired off another message saying “If a deal is made with China, our great American Farmers will be treated better than they have ever been treated before!”

Asia equity indices closed in the red and the marquee risk barometer, AUDJPY not only failed to rise, it dropped, falling from 79.64 to 79.16, where is sitting as of 13:32 GMT.

Trump’s trade tweets may have been ignored, but the Canadian dollar has not recovered from Trump’s tweeted complaint to Opec about high oil prices. USDCAD gained 1.0% since yesterday’s low and has failed to retrace any of the rally despite WTI oil bouncing from its overnight low of $55.05 to $55.81 (as of 140:0 GMT).

Wall Street followed Asia and European bourses lower, but even with this morning’s soft open, the major indices are up at least 5% for the month. Traders were a tad uneasy after the Case-Shiller Home Price index rose 4.2% in December, below the 4.5% that was expected. Housing starts were also below forecast, and 11.2% lower than November starts.

housing starts — Source: US Census Bureau

jpy — AUDJPY, 15-minute. Source: Saxo Bank

Quarterly Outlook 2024 Q2

2024: The wasted year

Macro: It’s all about elections and keeping status quo

Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.

FX: The rate cut race shifts into high gear

As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.

Equities: The AI and obesity rally is defying gravity

Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.

Fixed income: Keep calm, seize the moment

With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.

Commodities: Is the correction over?

Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

Macro: It’s all about elections and keeping status quo
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
FX: The rate cut race shifts into high gear
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Equities: The AI and obesity rally is defying gravity
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
Fixed income: Keep calm, seize the moment
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities: Is the correction over?
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.

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FX traders' Bohemian Rhapsody

Michael O’Neill

Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 05

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

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FX traders' Bohemian Rhapsody

Michael O’Neill

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Latest Market Insights

Quarterly Outlook 2024 Q2

01 / 05

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

Macro: It’s all about elections and keeping status quo

FX: The rate cut race shifts into high gear

Equities: The AI and obesity rally is defying gravity

Fixed income: Keep calm, seize the moment

Commodities: Is the correction over?

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