BOJ statement shows no change
UK Public Sector Net Borrowing 13.4B vs. 14.8B
Nikkei 2.39% Europe 0.51%
Oil $54/bbl
Gold $1196/oz.
Europe and Asia:
NZD Business Confidence 30.4 vs. 31.5
EUR Current Account 20.5B vs. 27.8B
GBP UK Public Sector Net Borrowing 13.4B vs. 14.4B
North America:
CAD Retail Sales 8:30
It's been a very choppy consolidative session on the last trading day of the week as many dealing desks have started to close their books for year end and the economic calendar has thinned appreciably.
Most of the majors have spend Asian and early European trade marking out 30-40 pip ranges in lackluster directionless trading. The one exception was USD/JPY which popped above the 119.00 level and moved all the way towards 119.50 on the back of BOJ meeting announcement that showed no policy change but nevertheless reaffirmed the central bank's commitment to more stimulus.
With holiday season nearly upon us it may be worthwhile to examine FX scenarios during this upcoming period. Generally markets tend to become very quiet at the end of the year, with most of the key participants away from their desks as liquidity dries up considerably. Under such conditions any geopolitical or economic shocks tend to overstate the price movements as reactions can quickly overextend.
This year however, most of the key geopolitical and economic surprises have occurred in the first two week of the month, with decline in oil, collapse of the ruble and negative rates from SNB all driving trade and volatility. With markets having now reacted to all the various dislocations, chances are that price action will remain subdued for the rest of the year as most of the risks have been priced in.
With very little fresh economic data planned for the next two weeks, the risk to the market lies primarily from some political surprise from rogue nations such as North Korea. Barring such unforeseen development the global news cycle is likely to be placid over the next few weeks and prices will most likely reflect that decline in volatility.
Finally a note on the high yielding comm dollars like the Aussie and kiwi. Some analysts have noted that the move to negative rates by the SNB should only increase demand for the high yielders as European monetary authorities do everything in their power to generate liquidity and depreciate exchange rates. Certainly for a Swiss denominated investor it is far more lucrative to keep his capital in high yielding AU instruments rather than pay negative carry.
Yet so far the market has not flocked to the high yielders, fearing that the economic slowdown in the Asia Pacific region will eventually force the authorities to cut rates next year.Yet both Australian and New Zealand policy makers have shown no inclination to cut rates in 2015 with the New Zealand authorities taking a particularly hawkish view on rates. If conditions in Asia show some stabilization and even a modicum of improvement, market sentiment will change quickly and both the Aussie and the kiwi could once again find a bid as yield hungry bargain hunters plow back into those currencies.
I will be out until January 5 - Happy holidays to all.
Recommended Content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
Google starts indexing Bitcoin addresses
Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.
A Hollywood ending for fourth quarter GDP
The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.