- Forex today was seeing irregular price action leading into the Thanksgiving holidays which are typically quiet given the lack of liquidity and schedule events, be them political or economic, but with Brexit, Italy and trigger-happy Trump on his Twitter account, (unlikely to resist even on Thanksgiving), participants in markets that are open will remain on alert.
- The greenback was mixed but, once again, the Fed is a theme which sentiment is fickle as to whether they will continue their scheduled pace of tightening or not.
- The global growth outlook has taken a hit in recent weeks, and the street is starting to price that into how this may trickle through to the US economic growth story down the line.
The dollar market has started to factor in the widening gap between the Fed’s projections to that of the actual rate market whereby futures are pricing in at least 2 ½ hikes through 2020 while the latest Fed call was seeing 5.
US data was mixed as follows:
- Initial jobless claims came in at the highest level in over four months at 224K. The expectations were for 215K.
- US durable goods orders fell -4.4% in October (vs -2.6% expected). Looking beyond the noisy headline, core capital goods orders and shipments both underwhelmed (the latter goes into GDP as business investment). Core orders were flat (vs +0.2% exp), and the prior was revised down notably to -0.5% from -0.1%. Core shipments matched consensus at +0.3%, but Sep was revised lower.
- Michigan consumer confidence was also weaker than expectations at 97.5 versus 98.3 expected
The price of oil is a continuing factor dominating headlines and traders screens with the price now down around 30% – (WTI crude oil futures were up $1 or 1.83% at $54.41, but still very much under water); That too is being factored into the global growth picture and inflation forecasts. Given the rise in Shale production in the US of recent years that has turned the US into a major oil producer means that the Fed will undoubtedly be looking at how this may impact their inflation targets for the economy and how much effect this might play a role in the performance of the US’s growth in 2019.
Meanwhile, US stocks were dragged lower despite the lower forecasts of Fed expectations as trade tensions linger in the background ahead of the G20. The benchmarks were at least ending higher but were performing at their worst pre-Thanksgiving holidays levels for seven years. Trump will likely have to try and get something done with China or risk being blamed for an economic downturn, or at least the reversal on Wall Street and stock market crash.
Currency action
The focus was on Brexit and Italy. There were some hints of cooperation from the Italians over their budget, seeking to avoid a clash with the EC and penalties that sent bonds higher and Italian yields down sharply by -14.6 bps. The German 10-year yield moved up 2.6 basis points which buoyed the euro vs the dollar, (US10 year yield was down -0.2 bps at 3.0609% after trading as high as 3.087% intraday). There was a downside miss to US durable goods which also hurt the greenback. The single currency got through the 100 hour MA today and in the North American afternoon. EUR/USD lifted near 1.1430 but was very indecisive either side of the 1.1400 handle. EUR/USD closed at 1.1386. GBP/USD was up to test the 100 hour MA, but bulls could not find the legs to get over the line on a series of attempts. Overall, bears are in control with the price below the 10-D SMA and cable was weak into the American close, ending the session at 1.2782 within an NY range of between 1.2820-1.2765. We will likely have to wait and see what May can conger up with EU’s junker on Saturday, as meetings on Wednesday failed to produce much of an outcome by the sounds of things An EU spokesperson said that there was, ‘progress’. This left the cross undecided between narrow ranges, ending NY at 0.8915, +0.31% within Wednesday’s range of 0.8923-0.8893. USD/JPY was climbing from 112.80 to 113.13 while the yen was underperforming on the day on a slight correction in risk sentiment with US stocks closing higher. US 10yr treasury yields rose from 3.07% to 3.09% before retracing while 2yr yields climbed from 2.80% to 2.83% – (Risk sentiment has failed to move bond prices in the last few sessions, perhaps due to the streets fickle assessment of the outlook for the Fed and indeed the looming Thanksgiving Day holiday. Fed fund futures yields repriced the chance of another rate hike on 19 December at 75% (from 70%). As for the commodity complex and EM-FX, the focus was on the USD/CNH which continued to slide. A combination of that and weak US data, dip buyer that were waiting in the shadows took the Aussie up as a bargain from near to the 21-D SMA support area at 0.7200 late in the North American session and onto 0.7280, back above the 10-DMA and daily cloud. The upside is favoured while the shift in Fed sentiment on the street sees Australia-U.S. yield spreads holding near recent tights.
Key notes from US session:
- Wall Street erases majority of early gains, closes modestly higher
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