As the new trading week kicks off, price action across various asset classes suggests financial markets are tucking in for the highly anticipated conclusion of the FOMC’s two day policy meeting on Wednesday. The subdued overnight session has allowed participants to book profits on the greenback prior to the Fed’s policy statement and Yellen’s subsequent press conference on Wednesday, with the DXY ebbing back below the 100 level, boosting EURUSD back to the north side of 1.05. Hydrocarbons are also appreciative of the bout of profit taking in the USD, with the weakness in the greenback helping pull both WTI and Brent off overnight lows that have not been seen since March of 2009, after worries the supply glut could worsen drove the front-month WTI contract into the mid-$43s overnight. US equity futures have been given a lift as the big dollar consolidates ahead of the opening bell in North America, looking to claw back some of Friday’s losses after a strong close in China helped boost risk appetite.
The overnight Asian session was a mixed bag, with the Nikkei unable to make any headway as a stronger yen stifled any positive momentum and held the equity index to essentially an unchanged print. The big winner during the Asian session was the Shanghai Comp, which managed to post a gain of 2.24% to begin the new trading week, as investor’s added growth-correlated assets to their portfolios after Premier Li pledged to prop up the economy if growth was at risk of breaching the lower limit. The comments from the Premier have helped ease participants concerns that a sluggish start to Q1 is already threatening the government’s 7.0% growth objective for 2015, though given the inconsistencies of reporting around the Lunar New Year would suggest waiting for the March data set to better suggest if further stimulus measures are necessary.
The loonie and its commodity-linked brethren are benefiting from the consolidative price action in the greenback, despite front-month WTI remaining soft below $45/barrel. USDCAD has edged away from the strong psychological resistance at the 1.28 handle, with loonie traders on hold after deciphering the mixed jobs data from Friday and waiting to see if the Fed amends their forward guidance on Wednesday. Even though the employment situation in Canada was modestly better than expected given the amount of full-time jobs added, the magnitude of losses in the natural resource sector over the last two months suggests continued softness across national averages in the first half of the year and doesn’t provide a particularly bright outlook moving forward; combined with the very real possibility forward guidance from the Fed is altered to increase the probability of an interest lift-off at the June meeting, the 1.28 level may have a hard time corralling the USDCAD pair in the short-term.
Further reading:
How To Prepare For A Less ‘Patient’ Fed? – BNPP
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