Fed Holds Rate, USD Weaker Across The Board

September 17, 2015 in Fundamental Outlook, High Impact Data, Pinned Posts by Jason Tong

High Impact Data & Key FX Fundamentals
Friday, 18 September 2015

  1. Fed holds off on interest rate hike: US Dollar drops across the board
  2. US equity rallies erased but may be back on the climb
  3. US bonds being bought back at incredible pace
  4. Precious metals rally off Fed disappointment

150918

EUR/USD: bullish limited, focus is shifting towards ECB pressures to ease/cut due to FOMC hold on rates/uncertainty
Fundamental sentiment: risk aversive, cautious positioning pullback waiting for EUR weakness / USD renewed strength
Seasonal factors: aftermath of unusual trading day, Friday (cautious market)
Global outlook: could become more uncertain given Fed concurring to recent global impacts
Technical bias: structurally bullish with room to correct higher, 1.152 at risk of breach but could hold due to ECB QE
Emotive story: period of uncertainty over Fed intentions (trust issues) waiting on info to revive medium term bearish story

Previous HID:

  1. EUR Final CPI y/y – did not meet expectations adding to easing bias
  2. EUR German ZEW Economic Sentiment – no material impact though added weight to easing bias
  3. USD Core Retail Sales m/m – initial reaction USD negative, previous revisions bridge jobs disparity gap
  4. USD Core CPI m/m – inflation mandate did not support Fed expectations removing weight to Fed hike bias
  5. USD Building Permits, Unemployment Claims – no material affects though continue to support US jobs and housing sectors
  6. USD Philly Fed Manufacturing Index – no material affect though continues to weigh on US manufacturing implications
  7. USD FOMC Federal Funds Rate. Statement, Economic Projections – rate left unchanged, sparked position unwind
  8. USD FOMC Press Conference – dovish/hawkish/uncertain Fed, markets losing some confidence in USD

Forecast HID:

  1. NO EUR OR USD DATA

Futures:

  1. Net short bias increasing after 4 weeks of position unwinding
  2. Uncertainty in long positioning, investors holding onto long bets
  3. USD beginning to correlate but not enough conviction due to uncertainty

Focus:

  1. Speculative ECB easing bias in light of Euro zone growth slowdown (QE)
  2. Monetary policy divergence, broader global economy weakness vs. USD (data dependency)
  3. No longer about what the Fed can do to the world, but what the world can do to the Fed (short term, back to square 1)
  4. Fed rate hike timing, pace of normalisation, and Fed to remain hawkish (Dec) or any new info that may suggest Oct
  5. USD near term inflation variables (improvements/signs of growth/confidence) in line with Fed targets
  6. USD “further” improvement/consistency in labour market (wages) and correlation to consumption

Fears:

  1. US jobs vs. reduced Fed median dot forecasts raising risks of 2015 rate hike probabilities (slower tightening pace)
  2. Global and geopolitical uncertainty/growth/impacts that may affect Fed considerations for December (USD softness)
  3. International outlook that can continue to weigh on investor risk sentiment
  4. Overvalued Euro in contrast to risk aversive sentiment

GBP/USD: bullish pressure to continue as UK is now back in the race to raise rates first (neutralised to some extent/range bound)
Fundamental sentiment: near term bullish, may become speculative based on signs of strength/weakness
Seasonal factors: aftermath of unusual trading day, Friday (cautious market)
Global outlook: could become more uncertain given Fed concurring to recent global impacts
Technical bias: structurally bullish, trading in zone of key opposition, 1.566 at risk of breach but confined in topside range
Emotive story: period of uncertainty over Fed intentions (trust issues) waiting to gauge divergence between the GBP and USD

Previous HID:

  1. GBP CPI y/y – muted impacts due to USD focus and print meeting expectations (failed to add hawkish strength)
  2. GBP Average Earnings Index 3m/y – strong labour market in support of BOE hawkish stance
  3. GBP Claimant Count Change – unemployment on track in line with BOE hawkish stance
  4. GBP Retail Sales – “stable” though not positive supports current outlook as data mainly muted due to FOMC
  5. GBP Inflation Report Hearings – positive outlook on inflation driving optimism in BOE hawks
  6. USD Core Retail Sales m/m – initial reaction USD negative, previous revisions bridge jobs disparity gap
  7. USD Core CPI m/m – inflation mandate did not support Fed expectations removing weight to Fed hike bias
  8. USD Building Permits, Unemployment Claims – no material affects though continue to support US jobs and housing sectors
  9. USD Philly Fed Manufacturing Index – no material affect though continues to weigh on US manufacturing implications
  10. USD FOMC Federal Funds Rate. Statement, Economic Projections – rate left unchanged, sparked position unwind
  11. USD FOMC Press Conference – dovish/hawkish/uncertain Fed, markets losing some confidence in USD

Forecast HID:

  1. 0705 GBP MPC Member Haldane Speaks – may be relevant if fragile market receives new info in respect to rate race
  2. NO USD DATA

Futures:

  1. Net short bias increasing though strength is decreasing
  2. Long positions continue to cut though degree is waning
  3. USD adverse correlation where positioning suggests uncertainty

Focus:

  1. GBP wage growth and BOE hawkish rhetoric to remain consistent vs. rate race position against the Fed (data dependency)
  2. No longer about what the Fed can do to the world, but what the world can do to the Fed (short term, back to square 1)
  3. Fed rate hike timing, pace of normalisation, and Fed to remain hawkish (Dec) or any new info that may suggest Oct
  4. USD near term inflation variables (improvements/signs of growth/confidence) in line with Fed targets
  5. USD “further” improvement/consistency in labour market (wages) and correlation to consumption

Fears:

  1. Weak short term GBP inflation outlook pressures vs. Fed outlook
  2. US jobs vs. reduced Fed median dot forecasts raising risks of 2015 rate hike probabilities (slower tightening pace)
  3. Global and geopolitical uncertainty/growth/impacts that may affect Fed considerations for December (USD softness)
  4. International outlook that can continue to weigh on investor risk sentiment and Fed/BOE policy decisions