Fed Chair Powell isn’t very popular in the White House and even less so on Wall Street. The FOMC raised interest rates by 0.25% yesterday and trimmed rate hike projections for 2019 to just two. No surprises there. Wall Street was irked that the Fed still seemed hawkish and willing to hike rates despite Powell noting a lot of economic downside risks. Today’s Wall Street Journal editorial suggests the rate hike was the Feds response to Trump’s bullying tweets.
Wall Street closed with large losses, and that set the stage for Asia and European stock markets. The Nikkei closed down 2.84%, and the German DAX is currently down 0.90%. However, US equity futures point to a positive opening.
The post-FOMC US dollar rally was short-lived. The US dollar closed in New York with gains across the board. It gave those gains back overnight. EUR JPY, GBP and CHF are higher, AUD, NZD are lower (but well above their worst levels), and CAD is unchanged, compared to yesterday’s 6:00 am EST open.
JPY
USDJPY was hammered on the rise in risk aversion sentiment and a drop in US Treasury yields. The US 30-year Treasury yield is below 3.0% at 2.96%, while the 10-year yield sits at 2.760%. The Bank of Japan left interest rates and the policy statement unchanged.
AUD
AUDUSD is making a great effort to recover from its post FOMC losses A mixed Australian unemployment report hampered the recovery Australia added 37,000 new jobs in November, but they were all part-time. However, steady US dollar selling against the other majors lifted AUDUSD. NZDUSD tracked AUDUSD, but its rally was subdued due to a weaker than expected Q3 GDP result (Actual 0.3% vs forecast 0.6%, q/q)
EUR
EURUSD dropped from 1.1435 at the FOMC meeting to 1.1363 afterwards, and then it bounced in a 1.1365-1.1390 range until Europe opened. Traders there noted Wall Street and Asia equity market weakness, higher bond prices and an increase in risk aversion sentiment and bought EURUSD, taking it to 1.1484 before opening in New York at 1.1475.
GBP
Sterling traders forgot all about their “no-Brexit” deal woes and drove GBPUSD from 1.2615 to 1.2705 where it is currently trading. The currency pair got an added lift from extremely robust November UK Retail Sales data. (Actual 3.6% vs forecast 1.9%, y/y) The Bank of England left rates unchanged.
Oil
Oil prices bottomed out at $45.85/b overnight and climbed to $46.57/b. Sentiment is bearish on concerns of an oil glut in a slowing demand environment.
Yesterday’s FOMC meeting suggests today’s US data releases will be non-factors for traders.
CAD
USDCAD retreated from the overnight peak of 1.3505, but the drop was shallow. Traders are torn selling USDCAD on the back of broad dollar weakness and buying it because of low oil prices and a dovish Bank of Canada. USDCAD could be undermined tomorrow if Retail Sales and October GDP surprise to the upside.
The USDCAD tehnicals are bullish. However, upside momentum is waning as prices probe the resistance zone between 1.3500-40. A break above this level would extend gains to 1.3790. A break below the 1.3380-1.3400 zone would argue for a retest of support at 1.3240. For today, USDCAD support is at 1.3430 and 1.3400. Resistance is at 1.3490 and 1.3520.Resistance is at 1.3505 and 1.3530. Today’s Range 1.3430-1.3520.
