The Dow Jones, Nasdaq 100 and S&P 500 pushed into record highs without much interruption this past week. This is despite a revision to China’s method in counting coronavirus cases, which resulted in an unexpected surge of roughly 15k reports. The markets also brushed off the Fed committing to reducing the size of term and overnight repo operations as the balance sheet swelled.
The pro-risk Australian Dollar and similarly-behaving New Zealand Dollar rose, with the latter helped by a neutral RBNZ rate decision. The British Pound shined as well, fueled by expectations of fiscal stimulus that undermined dovish BoE monetary policy bets. Sentiment-linked crude oil prices appeared to find a bottom as the anti-risk Japanese Yen traded sideways and the Euro sank.
We begin the new week with Wall Street offline for Presidents’ Day, lowering levels of liquidity in financial markets. Globally, low levels of inflation have kept most central banks in a persistent accommodative mode. That may diminish the impact of UK, Canadian, Japanese and Eurozone CPI data on the GBP, CAD, JPY and EUR respectively over the next 5 trading days.
The FOMC meeting minutes will be of a particular focus, with policymakers tending to maintain neutral views on interest rates. That contrasts starkly with the markets dovish expectations which may be disappointed, risking a sour mood on Wall Street which may benefit the Yen and US Dollar. Other event risk includes the Iranian legislative election, EU budget talks and ZEW surveys.
The US Dollar may rise if the FOMC minutes cool 2020 rate cut bets and may be amplified by demand for liquidity amid the spread and impact of the coronavirus and Iran election.
The Australian Dollar will move with coronavirus headlines but a couple of domestic data points may offer a little respite.
The Mexican Peso reinforces its carry trade value despite Banxico cutting rates by 25 basis points.
The price of gold has remained in check for the past couple of weeks and is looking to break a narrowing technical pattern, fueled by growing fears that the coronavirus is still spreading.
The week ahead will see the release of the Fed’s January meeting minutes which could offer insight on the central bank’s willingness to cut rates and expand the balance sheet – two crucial tailwinds
The Relative Strength Index (RSI) undermines the recent rebound in GBP/USD as the indicator continues to track the bearish trend carried over from December.
Gold prices have coiled up between trend-defining technical barriers, hinting that a pivotal breakout establishing lasting direction is brewing ahead.
The US Dollar rolled over from resistance versus the Canadian Dollar; looks like a bit more weakness ahead at the least.
It was a tough week for the single currency as Euro sellers ran amok. But, retail traders appear to be trying to pick a low – keeping the door open for further losses.