Markets at a key inflection point

The G-10 rundown

USD – the US dollar staying firm despite the government shutdown and could maintain an even keel if risk appetite has peaked for now, save versus the JPY, which outperformed every other major during the worst of the December downdraft.

EUR – the euro struggling for inspiration in either direction, effectively neutral now that EURUSD has shifted back to mid-range after rejecting the upside break. 1.1300 and 1.1550 the next trigger levels for interest.

JPY – a proxy for risk appetite here, though an interesting twist on the situation that could mute JPY upside potential would be weak risk appetite driven by the concern that the market has over-interpreted the Fed’s dovish intentions, sending short US rates back higher. 

GBP – the weakest RICS House Price Balance reading for the cycle since 2012 overnight is a worry for UK consumer sentiment, as are the next steps for Brexit and the risk that the market is too complacent on the risk for either a no deal or elections.

CHF – latest rally in EURCHF at odds with weak risk sentiment, but we won’t try to build a narrative here, other than that EURCHF does not correlate as strongly as it used to with broad risk appetite and USDCHF is poking back higher.

AUD – the Aussie merely easing away from its recent strength rather than decidedly weak. AUD likely to show sensitivity to risk off, but supported at the margin as long as USDCNY remains below 6.80. 

CAD – USDCAD likely correlated with risk appetite and oil prices here, with low beta to other USD pairs unless we get a shocker with tomorrow’s CPI release.

NZD – we have noted the chunky drop at the front end of the NZ yield curve as the market prices mounting odds of an eventual RBNZ rate cut, and AUDNZD is taking note – a close above 1.0620 today would represent a 19-day breakout that we noted in yesterday’s FX Breakout Monitor and could mean a rally into 1.0800-50 next.

SEK – EURSEK not only not breaking lower, but poking at 10.29+ area resistance, a further disappointment for bears and risk off could see risk toward 10.35 and higher.

NOK – EURNOK move below the 9.75 level so far not bearing fruit for the NOK bulls, and the risks for NOK are to the downside if risk appetite and oil prices (lately very highly correlated) roll over.

Upcoming Economic Calendar Highlights (all times GMT)

• 1000 – Euro zone Dec. Final CPI
• 1100 – ECB’s Lautenschlaeger to Speak
• South Africa Reserve Bank Announcement (no time indicated)
• 1330 – US Jan. Philadelphia Fed
• 1330 – US Weekly Initial Jobless Claims
• 1545 – US Fed’s Quarles to Speak
• 2330 – Japan Dec. CPI