Daily Roundup – Markets review 10/01/2019

Federal-Reserve-Vice-Chair-Hearing

Daily Roundup – Markets review

January 10th

 

Economic data may be thin on the ground once again today, but there have been some notable swings in sentiment amongst the major currencies in recent hours. Messages from the Federal Reserve have been reiterating the idea that patience is the new watch word when it comes to further policy tightening, so this – combined with better than expected employment data out of the Eurozone – served up meaningful gains for EUR/USD.

Critically there’s still no meaningful news over the outcome of those US – China trade talks which wrapped up yesterday. Some messages are emerging and the generally positive nature of these could again be driving some of the current dollar weakness, but the March 1st deadline for further tariff increases is edging a little closer. Any suggestion the higher tariffs will kick in will drive a flight to safety and have the potential to bolster the greenback despite dovish messages from the Fed.

Not only did the Bank of Canada hold interest rates steady at yesterday’s meeting, but they also downgraded economic forecasts for the country. This was sufficient to weaken the Loonie against the greenback, with slump in oil prices being seen as pivotal in the move. With divergent opinions over where crude will go in the year ahead, plus the threat of the US tipping into recession, USD/CAD may well prove an interesting trade in the medium term, especially if we see support emerging for crude.

The US Dollar is posting steady losses against the Yen, again with the Fed’s dovish tone the key driver here. Further JPY buying opportunities may well follow, given both the Yen’s safe haven allure and also the increasingly confident picture that’s being painted in Japan. The country appears ready to handle the imminent increase in consumption tax, strengthening treasury reserves and also paving the way for a return to more normal monetary policy.

Fundamental trading opportunities in the short term may well remain limited by the relative absence of fresh data released ahead of the weekend break. That dovish tone from the Fed could be countered by comments from Jerome Powell later today and with the dial tipped so far in one direction – the DXY dollar index is approaching levels not seen since late September – a snap back here remains a real possibility.

Technicals

Downside pressure on USD/ZAR, with an emerging death cross being observed on the 1 day chart. Look for  potential return to November lows around the 13.5 level.