Another record week for the S&P 500 on Wall Street was met with subdued volatility around the major currencies. The signing of the US-China “phase one” trade agreement was arguably the most significant event. Doubts remain over future talks due to this year’s U.S. presidential election. Around $360b in tariffs are still in place against the world’s second-largest economy.
The US Dollar outperformed against the majority of G10 FX over the past 5 trading days, with only the Swiss Franc seeing better returns on the whole. The Greenback’s relatively high yield appears to be sapping some of the potential returns from the “pro-risk” Australian and New Zealand Dollars. Understandably, the anti-risk Japanese Yen finished last week on a soft note.
The days ahead are filled with key event risk even though U.S. markets will be offline on Monday. The Japanese Yen, Canadian Dollar and Euro face a slew of central bank rate decision: the Bank of Japan (BoJ), the Bank of Canada (BoC) and the European Central Bank (ECB). FX investors may be waiting to see how a shift in sentiment can impact the road ahead for interest rates.
Outside of monetary policy, the International Monetary Fund (IMF) releases the latest world economic outlook. In Davos, political leaders from around the globe attend the World Economic Forum. Will these be able to restore volatility in foreign exchange markets? Or will they continue diverging with the overall trajectory for sentiment?
Fundamental outlook for the US Dollar remains unfavorable considering the Fed plans to keep inflating its balance sheet while markets grow exuberant and frothy amid an absence of volatility.
The Australian Dollar will face arguably its most important monthly data release this week, with official labor market stats are due. Sadly, these can be very tough to call.
Gold prices may rise if commentary from officials at the Davos forum kindle easing bets and inflame demand for anti-fiat hedges like the yellow metal. Other key catalysts may also magnify this effect.
A trade deal signing coupled with a string of earnings from the country’s largest banks saw the Dow Jones drive to new records. Can stocks maintain this pace without further catalysts?
The British Pound may fall as swelling Bank of England rate cut expectations take center stage while the ongoing Brexit saga fades into the background.
The US Dollar rallied for a second consecutive week with the index pressing fresh monthly highs into the close. Here are the levels that matter on the DXY weekly chart.
Next week brings the European Central Bank’s first rate decision of 2020, and Lagarde will further put her stamp on the bank. Volatility may follow.
The 2020 opening range for EUR/USD raises the scope for a further decline in the exchange rate amid the failed attempt to test the August high (1.1250).
Gold traders have endured a lackluster week with the precious metal stuck in a limited trading range. A break either way is needed to stir up volatility.
Another week in the books, another week of rallying; continuing to run with the trend until signs of a reversal appear.