Fed Chair Jerome Powell echoed other FOMC members and reaffirmed that the Fed was in “wait and see” mode. The FOMC minutes that were released Wednesday afternoon had already confirmed the Fed’s patient stance. That suggests that markets widely misinterpreted Mr Powell’s post FOMC meeting comments on December 19, or Mr Powell needs a remedial course in communication. Whatever the reason, the DJIA has recovered 50% of December’s losses (peak to trough) as of yesterdays, close.
AUD & NZD
The US dollar dropped against all the G-10 major currencies overnight led by rallies in AUD and NZD. The antipodean currencies took off on the back of a soaring Chinese Yuan. The rising expectations for a successful conclusion to the US/China trade talks and Mr Powell’s dovish comments fueled renewed “risk” demand.
Oil prices are the little engine that could. They keep chugging higher. WTI climbed 12.4% since last Friday, touching $53.28/barrel in Europe. Opec production cuts, shrinking US crude inventories, an improving global growth outlook on optimism around US/China trade talks and a dovish Fed created the recipe for the rally. Profit taking knocked prices from their peak and WTI opened in New York at $52.02/barrel.
GBPUSD rallied from 1.2711 in Asia to 1.2849 at the New York open. The rally was sparked by reports that Brexit would be delayed. EU President Jean Claude Junker said that the EU would provide “clarifications” to Ms May’s Brexit plan, but “not to confuse them with a renegotiation.” A surprise pop in UK November GDP (Actual 0.2% vs forecast 0.1%, m/m) helped to ease the pain from weaker than expected Manufacturing Production, and Industrial Production data. JPM Morgan predicted a 4% rally in GBPUSD in the unlikely event that Ms May Brexit plan gets approved. EURUSD followed Sterling higher, but prices failed to break key resistance in the 1.1550 area.
The US dollar could have a pre-weekend rally as traders lock in profits. Higher than expected US CPI (forecast 2.2%, y/y)and a profit-taking sell-off on Wall Street could be the catalyst.
USDCAD is being weighed down by the broad US dollar weakness, oil price recovery, and by a somewhat “hawkish” Bank of Canada. The BoC repeated that domestic rates had to rise while simultaneously cutting the 2019 domestic growth forecast. More than a few economists are scratching their heads and wondering if Mr Poloz and company are out to lunch. Nevertheless, the break of support at 1.3320 has traders looking for a break below the 100-day moving average (1.3179) to lead to a test of the 200 day moving average. (1.3083).
The intraday USDCAD technicals are bearish an the currency pair is in an intraday downtrend channel from January 4, which is currently bound by 1.3220 on the top and 1.3105 on the bottom. Near term suppor is at 1.3179 (100 day moving average) and also this weeks low. A break ab ove 1.3220 would lead to 1.3320. Longer term, there is double bottom support at 1.3150 guarding a long term uptrend line from February 2018 which comes into play at 1.3000. For today, USDCAD support is at 1.3170-80 and 1.3150. Resistance is at 1.3220 and 1.3270 Today’s Range 1.3180-1.3270