Head of FX Strategy
Summary: Most negative yielding currencies faring poorly today as risk appetite tries to bounce back from yesterday’s funk. A pivotal few days for global markets lie ahead, especially tomorrow’s FOMC meeting and a test of market sentiment as a key Chinese trade official visits Washington in coming days.
Exchange rates across the major and EM currencies show a market that is clearly gunning to take on risks in FX – even after a flurry of negative news that dented risk appetite yesterday. The market seems to want to find hope in the latest Chinese stimulus news and on the idea that the Fed will prove increasingly benign and is set to roll out a more dovish guidance message tomorrow at the Federal Open Market Committee meeting, particularly on its quantitative tightening schedule. The US dollar is weak against most emerging market currencies and elsewhere, the very weakest currencies are some of the negative yielders like JPY, CHF and SEK.
On the strong side, sterling is back higher as the parliament is set to vote on a number of “amendments” this evening that could point to a delay of Article 50 and more. Most EM currencies are trading on the strong side, following China’s renminbi – note USDSGD and the usual suspect USDTHB looking at new lows as China has boosted the CNY to a new local high versus the US dollar as the key Chinese trade official, Liu He, is set to visit Washington tomorrow through Thursday.
Today’s FX Breakout monitor
Page 1: Even as the broad USD picture shows weakness against EM and especially sterling lately, remarkable to note that the key JPY pair USDJPY continues to range trade and remains close to the upside break level of 110.00 (a bit lower on a daily close basis, but the clear chart focus is on the big round 110.00 level).
EURJPY also looking above the 19-day high close since yesterday. Elsewhere, GBP pairs remain generally bid and AUDNZD is poking near the lowest closing level for the cycle after an ugly decline in an Australian business survey overnight and ahead of tonight’s Q4 CPI data.
2024: The wasted year
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.
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.
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.
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 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.
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.
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.
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.
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 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.
