The big news hanging over markets remains the release of yesterday Fed minutes from last month’s policy statement. As is usually the case with Federal Open Market Committee, its members were very non-committal in the minutes but did say that unless things changed drastically between now and the December meeting, there is a chance that rates could very well move higher, they think. It would appear the Fed though is preparing everyone for a normalization period, which could be low”¦ and slow”¦ Markets in North America jumped higher on the “clarity” and the optimism spread overnight, as indices in Europe and Asia were a sea of green. The US dollar was sold off a touch as it did little to reinvigorate the foreign exchange bulls, who admittedly had little upside.
There was very little economic data to speak of overnight, despite Japan’s latest policy meeting. News this week that Japan’s economy slumped into recession did not dissuade policy makers, who voted 8-1 to keep policy unchanged. There is some growing chatter in European circles that “QE2″ is gaining traction within the ECB, but the euro is rising none the less. Tomorrow, ECB Chairman Mario Draghi will address markets but is unlikely to upset the apple cart. The commodity conundrum, which we spoke of yesterday, continues to envelope markets as oil prices crashed below the important $40 mark. For the moment, the reaction has been muted in FX circles, as so-called commodity currencies (AUD, CAD, NOK) have not been hit too hard.
Concerning the FOMC minutes released yesterday, there were not many surprises. Policy members did change the wording of their statement a bit to specifically reference a December hike but there was no suggestion it is a done deal. Although the Fed members claim not to be politicians, they sure had markets fooled. While they did express concern over the slower pace of employment growth in August and September, those seem to have been erased by the October jump as a well as the positive signals in inflation date over the last few months. The key aspect of the minutes was the specific reference to a December hike, but regardless of this fact, the dollar was sold off a bit as most other currencies were largely unaffected.
Turning towards North America, it is Thursday which means all eyes will be on weekly jobless claims here in the US. The market is hoping for another strong number, this week it is expected that only 274k Americans filed first time unemployment claims for the week ending November 13th. The US dollar has traded within a fairly tight range, after finding a bit of support on Monday in the wake of last week’s terrorist attacks in Paris and Beirut. Yesterday there was some other US released before the Fed’s minutes, as it was reported housing starts declined a bit more than anticipated during the month of October. Despite this result, markets seem prepared for a December rate hike as the disappointing housing data was brushed aside. As previously reported, the Fed minutes showed a change of wording to explicitly mention a possible December rate hike – unfortunately this news was not enough to push the already strong dollar any higher. There is no US economic data due tomorrow.
Much like its American counterpart, the Canadian dollar has traded within a very tight range for most of this week. The fall in commodity prices have weighed heavily on the Loonie early in the week, putting to test the 2015 lows. October inflation data and September retail sales will be reported on Friday and could impact price action if it were to beat or miss expectations by a wide margin. Despite last month’s Parliamentary elections, there have been no swift changes to policy announced, so any reaction to tomorrow’s CPI data should be short lived. Markets are expecting no change to prices over the previous month. At the moment, USD/CAD remains a buy on dips.
Further reading:
Fed December rate hike view already factored in EUR/USD, parity remains a long walk
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