Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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NY Open: Greenback slip, sliding away
Michael O’Neill
FX Trader, Loonieviews.net
Summary: Green shoots of recovery are evident in equities ahead of the Fed's monetary policy announcement later today. But the greenback is grinding lower in tack with wilting Treasury yields.
The greenback is grinding lower, slowly but steadily in the run-up to the Federal Open Market Committee meeting. US dollar sellers are taking their lead from 10-year US Treasury yields which have ticked down from 2.823% to 2.810%. Those traders expect a “dovish” tilt to the FOMC statement, Summary of Projections and from Fed chair Jerome Powell.
Powell got the dovish ball rolling at the end of November when he said that interest rates were “just below” neutral, a marked change from his previous comment that rates were “a long way from neutral”. Traders are hoping that the FOMC will help them rebuild from the carnage on Wall Street for the past two weeks. It has already started. European bourses and the major US equity indices are modestly higher. The Dow Jones Industrial Average gained 0.67% as of 1400 GMT.
EURUSD opened in New York at 1.1364 and is trading at 1.1428. A break above resistance at 1.1440 would trigger a sharp rally to 1.1510, which is the 50% Fibonacci retracement level of the September-November range.
USDJPY is suffering from the drop in US Treasury yields and is probing uptrend channel support which has survived multiple tests since June. A decisive break below 112.10 would extend losses to 110.70
Oil traders are still reeling from yesterday’s 7.0% plunge. Prices have found a short-term bottom in the $45.80-$46.00/barrel area. Some traders believe thin, holiday markets exaggerated the oil price drop. Prices will also find support from positive news around the US/China trade talks.
The drop in oil spanked the Canadian dollar. USDCAD rallied from 1.3393 to 1.3495 yesterday and then spent the overnight session in a 1.3451-1.3480 range. Canadian CPI was -0.4% in November, which was “as expected” because of the drop in oil prices. USDCAD ignored the data and sank on the back of broad US dollar weakness.
Powell got the dovish ball rolling at the end of November when he said that interest rates were “just below” neutral, a marked change from his previous comment that rates were “a long way from neutral”. Traders are hoping that the FOMC will help them rebuild from the carnage on Wall Street for the past two weeks. It has already started. European bourses and the major US equity indices are modestly higher. The Dow Jones Industrial Average gained 0.67% as of 1400 GMT.
EURUSD opened in New York at 1.1364 and is trading at 1.1428. A break above resistance at 1.1440 would trigger a sharp rally to 1.1510, which is the 50% Fibonacci retracement level of the September-November range.
USDJPY is suffering from the drop in US Treasury yields and is probing uptrend channel support which has survived multiple tests since June. A decisive break below 112.10 would extend losses to 110.70
Oil traders are still reeling from yesterday’s 7.0% plunge. Prices have found a short-term bottom in the $45.80-$46.00/barrel area. Some traders believe thin, holiday markets exaggerated the oil price drop. Prices will also find support from positive news around the US/China trade talks.
The drop in oil spanked the Canadian dollar. USDCAD rallied from 1.3393 to 1.3495 yesterday and then spent the overnight session in a 1.3451-1.3480 range. Canadian CPI was -0.4% in November, which was “as expected” because of the drop in oil prices. USDCAD ignored the data and sank on the back of broad US dollar weakness.
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