The G-10 rundown
USD – obviously very sensitive to tomorrow’s FOMC meeting with two-way risks – a shoulder shrug from the Fed and wait and see stance could see the USD backing up, while a clear commitment to ensure that longer yields won’t be allowed to rise much could encourage a fresh wave of USD selling.
EUR – the EURUSD seems to be champing at the bit at the topside of the range and ready to progress to the 1.2500+ zone if the market backdrop remains supportive (risk-on) and closely linked to that, whether the Fed delivers tomorrow. No Fed indication on long US yields could drive an significant move lower in EURUSD, at least tactically.
JPY – the Fed clearly moving on the yield-curve issue, as discussed above, could drive a USDJPY move lower, but the JPY may not stand out on the strong side more broadly as long as the reflationary narrative is all the rage. As indicated above, failure by the Fed to signal any interest for now in keeping long yields low could lead to the USD backing up against negative yielders.
CHF - the SNB has apparently had the luxury of reducing its sight deposits, suggesting no pressure from abroad for its currency to strengthen. Ditto comments above on EUR and JPY if Fed fails to deliver. Brexit a side issue that is probably the reason EURCHF is below 1.0800 here and not challenging the important 1.0900+ area.
GBP – the relief rally on the extension of negotiations after the week-end didn’t last long – waiting for next headlines, but the best case doesn’t look so great a this point as it is hard to see the EU yielding much after dragging things out this long and the UK will not accept limitations on its sovereignty – that was the whole point of Brexit.
AUD – iron ore futures have rebounded after a mere one-day sell-off, which is Aussie supportive, but the near parabolic rise there makes me a bit nervous for the correction risk when it does arrive. As well, China is teasing restrictions on Australian coal imports, in the latest sign of growing pressure on the country.
CAD – USDCAD has worked half of the way to the 1.2500 area after breaking down below 1.3000 – this is a pair that will remain sensitive to the reflationary narrative, risk appetite and oil prices.
NZD – the kiwi is impressively weak – another leg higher in AUDNZD into 1.0700+ and that chart has effectively posted a significant reversal.
SEK – Sweden struggling with its outlier Covid-19 policies, but the market largely brushing this off for now, as EURSEK never triggered above the important 10.300 area on this latest bout of consolidation. Risk appetite and hopes for the other side of Covid-19 are the important factors for keeping the focus lower in EURSEK/higher for SEK.
NOK – EURNOK looks ready to challenge the cycle support below 10.400 if the FOMC doesn’t stand in its way and we see a continuation of the reflationary backdrop – but the price action has been bottled up for weeks and we probably need a solid swing above $50/barrel in Brent crude.
Upcoming Economic Calendar Highlights (all times GMT)
- 1315 – Canada Nov. Housing Starts
- 1330 – US Dec. Empire Manufacturing
- 1415 – US Nov. Industrial Production
- 1930 – Canada Bank of Canada Governor Macklem to Speak
- 2200 – Australia Dec. Flash Services/Manufacturing PMI
- 2350 – Japan Nov. Trade Balance