FX Trader, Loonieviews.net
Summary: A good start for the larger G-10 currencies turned to a reversal later this session when profit-taking boosted the greenback across the board.
The major G-10 currencies had a good week. The Australian and New Zealand dollars gained 1.56% and 1.49% respectively, compared to last Friday’s New York close. The Canadian dollar rose 1.4%, and the euro increased 1.2%. However, those gains were at the New York open. Since then profit taking has boosted the greenback across the board with EURUSD down 0.62% since the open.
Wall Street erased yesterday’s gains by 15:00 GMT and unlike yesterday, will probably close in the red. That’s because traders have accrued some decent profits this week and there is a lot of event risk ahead, including US government drama and the UK Brexit-deal vote. This morning's US CPI data didn’t have any impact. CPI fell 0.1% due to lower oil prices.
Former US President Ronald Reagan was sometimes called the “Great Communicator.” It is very unlikely that Fed Chair Jerome Powell will be referred to that way. He muddled the message from the December 19 Federal Open Market Committee meeting. Since then, he has been doing damage control, going from saying the Fed would continue to gradually raise rates to: “We are in a place where we can be patient and flexible and wait and see what does evolve,” yesterday. That sentiment echoed what other FOMC members were saying and was almost identical to his January 4 comments. Wall Street rallied all week but may use the weekend as an excuse to book some profits.
Next week should provide plenty of opportunity for traders. The UK parliament vote on Theresa May’s Brexit plan may be the highlight of the week unless President Trump does something stupid. GBPUSD soared Friday helped by an Evening Standard report that Brexit would be delayed. Most pundits believe Theresa May will lose Tuesday’s parliamentary vote. A JPMorgan analyst predicted a 4% GBPUSD rally if, Ms May achieves a surprise victory. Whatever happens, GBPUSD trading will be chaos.
There are plenty of inflation reports on the docket including those from the UK, US, Canada, Eurozone, and Japan. The UK data will be lost in the Brexit drama while the US data might not even arrive because of the government shutdown. Monday’s China Trade data will serve to keep the focus on the Beijing/Washington trade talks.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
