The quarter ended with more data suggesting the Fed won't hike this year. On the day, the commodity currencies led the way while the euro lagged. Up next, the Q3 Tankan survey kicks off a huge month for Japan. The chart below shows the fading US yield differential over six major currencies since the start of the year. Interestingly, the percentage change in the US 10-year yield over that of Japan, Eurozone and UK is now negative YTD.
Click To EnlargeFlow-driven trades were the story on Wednesday as the quarter wound down. Fund rebalancing helped boost the S&P 500 to a nearly 2% gain but the index was still down 6.4% in the past three months in the worst quarter since 2011.
Best FX PerformersWhen we evaluate the quarter, the Fed was the most-talked-about event but the impact proved to have been overstated as the quarter progressed. The euro was the second-best performing currency this quarter, behind only the yen, narrowly edging over the US dollar.
The big drivers are China and emerging markets. The Brazilian real fell by more than 20% in the quarter and worries about China led to wide stock market losses across the board. In turn, that sparked capital repatriation into USD and JPY.
One spot we're watching closely now is the pound. GDP numbers were a touch soft but the current account improved. In any case, cable has fallen for nine straight days but has nearby support at the May low of 1.5089.
Euro outperformance was another theme early in the quarter but it may come under fresh threat from soft inflation data. The ECB can afford to wait a few months and hope economic data improves but late in the year or early in 2016, they will be put under pressure to act.
But the central banks most in play at the moment are the RBA and BOJ. The IMF released a report warning about the potential for a hard landing in Aussie housing Wednesday and said Stevens has more room to cut if needed.
More from Japan?JPMorgan was out with a report calling for the BOJ to unleash a new round of stimulus. The Japanese PM was talking about Abenomics 2.0 yesterday and the October 30 decision promises to be a big one. A major factor will be industrial sentiment and the best gauge comes today at 2350 GMT when the Q3 Tankan is released. The large manufacturer sentiment index is expected to slip to 13 from 15 while small manufacturing is forecast at -2 from zero. Ashraf has detailed the various paths of stimulus likely to be adopted by the BoJ as he makes the case for another trade in the latest Premium Insights.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
AUD/USD remains under pressure above 0.6400
AUD/USD managed to regain some composure and rebounded markedly from Tuesday’s YTD lows in the sub-0.6400 region ahead of the release of the Australian labour market report on Thursday.
EUR/USD holds above 1.0650 amid renewed selling pressure in US Dollar
The EUR/USD pair edges higher to 1.0672 on Thursday during the early Asian session. The recovery of that major pair is bolstered by renewed selling pressure in the US Dollar and a risk-friendly environment.
Gold dips on falling US yields as traders shrug off hawkish Fed remarks
Gold prices retreated from close to weekly highs during the North American session on Wednesday amid an improvement in risk appetite. The bullish impulse arrived despite hawkish commentary by US Federal Reserve officials.
Bitcoin price uptrend to continue post-halving, Bernstein report says as traders remain in disarray
Bitcoin price is dropping amid elevated risk levels in the market. It comes as traders count hours to the much-anticipated halving event. Amid the market lull, experts say we may not see a rally until after the halving.
Australia unemployment rate expected to rise back to 3.9% in March as February boost fades
Australia will publish its monthly employment report first thing Thursday. The Australian Bureau of Statistics is expected to announce the country added measly 7.2K new positions in March after the outstanding 116.5K jobs created in February.