Decembers hawkish Fed Chair Jerome Powell was nowhere to be found at yesterday’s FOMC meeting. Instead, “Powell the Pauser” took to the podium. He acknowledged concerns (he called them crosscurrents) that his colleagues, markets and even President Trump had identified and put the brakes on rate hikes. Financial markets were elated.
Wall Street soared, and US Treasury yields cratered. The 10 year Treasury yield plunged from 2.729% yesterday to 2.663% by this morning’s New York open. Global stock indices rallied. The Nikkei 225 closed with a gain of 1.06%. European bourses are having a mixed session. Eurozone Q4 GDP grew at 0.2%, q/q, as expected and German unemployment rate was unchanged at 5%.
Sterling is still basking in the glow of yesterday’s UK Brexit news. The House of Commons gave Theresa May a mandate to renegotiate the Irish backstop agreement and passed a non-binding resolution to avoid a no-deal Brexit. However, EU officials are playing hardball and saying they will reopen talks. Nevertheless, GBPUSD is consolidating yesterday’s gains inside a 1.3110-55 range. UK Nationwide Housing Price data (0.3% vs forecast 0.2%) was lost in the Brexit noise.
EURUSD soared alongside the rest of the G-10 major currencies following the FOMC meeting. However, it ran into resistance at 1.1513 and retreated to 1.1483. The single currency is struggling to accelerate due to soft Eurozone data (German December Retail Sales Actual -0.6% vs November 1.4%) and because of ECB President Mario Draghi’s dovish comments last week.
USDJPY was crushed. Prices fell from 109.72 yesterday to 108.53 overnight fueled by the plunge in US Treasury yields.
AUD & NZD
The Antipodean currencies rallied on the back of broad US dollar weakness. They got an added boost from expectations that progress is being made in the US/China trade talks
USDCAD consolidated yesterday afternoon’s losses and traded in a 1.3122-1.3150 range. Prices are undermined by rising WTI oil prices, the dovish Fed result, and narrowing Canada/US interest rate differentials. Canada November GDP is expected to show a decline of 0.1% this morning, but some of the weakness is due to the postal strike. USDCAD losses from weaker than expected data will be capped because of the dovish Fed yesterday, while better than expected results will drive USDCAD to 1.3050. Also, month-end portfolio rebalancing flows should put additional downside pressure on the currency pair
The intraday USDCAD technicals are bearish below 1.3220 supported by yesterdays break of the 100 day moving average at 1.3208 and then support in the 1.3180 area. 1.3227 was the 50% Fibonacci retracement level of the October/January range of 1.2790-1.3665, which targets the 61.8% retraacement level of 1.3120 and the 200 day moving average of 1.3124. A break of this major support area will extend losses to 1.2990 and then 1.2790. For today USDCAD support is at 1.3120 and 1.3080. Resistance is at 1.3180 and 1.3220.
Today’s Range 1.30700-1.3170.