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Markets In a session marked by signs of year-end investor fatigue, U.S. stocks managed to eke out slight gains on Wednesday, with subdued trading and a lack of significant market-moving news. The S&P 500 ended 0.3% below its record closing high of 4,796.56 on Jan. 3, 2022. The Dow notched a new record closing high. The three primary U.S. stock indexes experienced fluctuations, alternating between modest gains and losses before closing in positive territory. Despite the day’s mixed performance, all three U.S. indices are poised for monthly, quarterly, and annual gains. The proximate market driver was a steep fall in the pivotal benchmark 10-year U.S. yield. Following a positive reception for Tuesday’s two-year sale, the auction of $58 billion in five-year notes on Wednesday received favourable attention, considering the prevailing market holiday condition and setting the week up for a clean sweep if all goes well with Thursday’s 7-year note auction. The period between Christmas and New Year’s is not typically known for a significant influx of market-moving news; however, the Treasury rally on Wednesday, supported by the success of the five-year stop-through, carried notable weight and saw 10s richer by almost 10 bps, with yields slipping below 3.80%, the… Read More »Asia open insights: Navigating languid markets that still break fresh higher ground

AUD/USD Current Price: 0.8649 The US Dollar slides across the board, boosting AUD/USD. The pair trades near the upper limit of an ascending channel. AUD/USD approaches 2023 highs and holds near the level it closed last year.  The AUD/USD broke firmly above 0.6800 and rose further to the 0.6850 area, reaching the highest level since July. The key driver behind this is a broad-based weakness in the US Dollar heading into the year-end. Regarding economic data, no reports are due from Australia until 2024. In the US, data released on Wednesday showed the Richmond Fed Manufacturing Index falling from -5 to -11, below the expected -7. On Thursday, more important data is due with the weekly Jobless Claims report. The focus regarding data is on next week’s employment figures (JOLTS, ADP, and NFP). The US Dollar Index (DXY) dropped to its lowest level since July, under 101.00. It remains under pressure, amid falling US Treasury Yields. Markets continue to bet on rate cuts from the Federal Reserve (Fed) next year. The AUD/USD is headed towards the second monthly gain in a row, accumulating more than 500 pips of gains. The rally has eliminated 2023 losses and it is trading near… Read More »AUD/USD Forecast: Strong resistance awaits around 0.6855

The Effective Fed Funds rate from monthly averages 1 to 32 years reveals the same story as last December / January. Although Averages improved. The shape of Averages is contained as a Bell Curve by humped in the middle while left and right tails trade low yet acceptable.  Humped in the middle, best described as Leptokurtic was the result to Bernanke and Yellen’s 0 interest rate policy. Without Bernanke and Yellen policies, averages would actually trade as a flat line across all averages. Averages from 1 to 7 years trade overbought yet the degree of overbought lacks any concept to extremes. The extremes to low and overbought averages are located from 8 to 25 years. Averages from 25 to 32 years are actually in good shape. Based on averages 1 to 7 years and 25 to 32, Powell and the Fed actually accommodates the possibility to raise if necessary. The distribution of averages would then form a Leptokurtic curve as the middle hump rises but thins and the right and left tails flatten further. The problem to Fed Funds at 5.33 and 32 year monthly averages is 5.33 is not captured by the data. Fed Funds by speculation trades around… Read More »Inside the currency market: Fed funds averages

EUR/USD climbed to a fresh multi-month high near 1.1050. The pair’s technical outlook suggests that the bullish bias remains intact. This week’s economic calendar will not offer any high-impact data releases. EUR/USD gained traction and registered small gains on Tuesday following the Christmas holiday. The pair continued to edge higher early Wednesday and reached its highest level since August near 1.1050.

The bond market rally continued in the past month, with European yields declining substantially. The 10Y Bund yields are currently trading 30-40bp below the levels at the start of the year, and the market is now pencilling in that the ECB will cut policy rates by 150bp next year. Just a few months ago the expectation was for a decline of 65bp. While we consider the fall in yields to be overdone, we concede that both US and European data have brought rate cuts closer. Inflation continues to decline in the Eurozone and the US, with price pressure easing in even the most entrenched elements of the consumer price indices (such as service prices). Underlying inflation also weakening is important for the central banks and clearly had an effect on December’s interest rate meetings, where the debate on more rate hikes seemingly evaporated completely. Signs of inflationary pressure easing in the developed economies have left their mark on the rhetoric of those central bankers who until quite recently appeared very much open to further interest rate hikes. Perhaps the most obvious example in the past month was the change in tune from Isabel Schnabel, a key member of the ECB’s… Read More »Set for higher long yields in 2024

The US Dollar gained more than 10% versus the Japanese Yen during 2023, a performance that will be hard to repeat in 2024. The divergence in monetary policy between the Federal Reserve and the Bank of Japan led the pair to test the multi-decade high near 152.00. USD/JPY broke a one-year bullish trend in December after failing to break 152.00, setting a bearish bias for the first quarters of 2024. Yen bulls have hope in the Bank of Japan, while US Dollar buyers rely on the US economy. The United States Dollar (USD) had a mixed performance during 2023, supported mainly by the robust US economy and limited by the rally on Wall Street. On the other hand, the Japanese Yen (JPY) went from verbal intervention aimed at limiting its depreciation to rally on every speculation and rumor regarding a potential shift in the Bank of Japan’s (BoJ) ultra-loose monetary policy. However, these expectations faded as the BoJ clarified that it is still far from implementing any changes. In December, the Yen experienced a recovery as markets perceived that the Fed would not raise interest rates further, and there were comments about an exit strategy at the BoJ. As a… Read More »USD/JPY Price Annual Forecast: Less divergence in monetary policy should benefit the Yen

The last PCE print for the US was perfect. Core PCE, the Federal Reserve’s (Fed) favourite gauge of inflation, printed 0.1% advance on a monthly basis – it was softer than expected, core PCE fell to 3.2% on a yearly basis – it was also softer than expected, and core PCE fell to 1.9% on a 6-month basis, and that’s below the Fed’s 2% inflation target.   Normally, you wouldn’t necessarily cheer a slowdown in 6-month inflation but because investors are increasingly impatient to see the Fed cut its interest rates, all metrics are good to justify the end of the Fed’s policy tightening campaign. So here we are, cheering the fact that the 6-month core PCE fell below the Fed’s 2% target in November. The US 2-year yield is preparing to test the 4.30% to the downside, the 10-year yield makes itself comfy below the 4% mark – and even the 3.90% this morning, and the stocks joyfully extend their rally. The S&P500 closed last week a few points below a ytd high, Nasdaq100 and Dow Jones consolidated near ATH levels and the US dollar looks miserable. The dollar index is at the lowest level since summer and about… Read More »Notes from a slow year-end morning

Gold price snaps a three-day uptrend near $2,070 early Wednesday. The US Dollar finds its feet amid sluggish US Treasury bond yields, a mixed mood. Gold price faces a stiff hurdle at $2,079, a brief pullback cannot be ruled out. Gold price has returned to the red for the first time in four trading days on Wednesday, pulling back slightly from two-week highs of $2,071 set on December 22. Gold price eyes a fresh catalyst amid thin trading Gold price is catching a breather, as the US Dollar (USD) is finding its feet due to a cautious market mood, despite a sluggish performance seen in the US Treasury bond yields. Investors catch up on their trades, as well as, on the latest macroeconomic developments following the Christmas holiday break, keeping themselves away from any fresh directional bets. Additionally, muted activity on the US Federal Reserve (Fed) interest rate cut bets for next year also leaves Gold buyers in limbo. Gold price was on a three-day uptrend, backed by increased expectations of Fed rate cuts in 2024. Markets are currently pricing in a 79% chance of a rate cut starting in March 2024, according to the CME FedWatch tool, with as… Read More »Gold Price Forecast: XAU/USD buyers turn cautious, as full markets return

EUR/USD and SPX 500 trade patterns from 2021 to 2003 ran simultaneous as 8 up months Vs 4 down months. The pattern turned slightly in 2020 as 6 up months for SPX to 6 down months as EUR/USD traded 7 up months to 5 down. In 2019, the EUR/USD and SPX patterns completely deviated as SPX traded 10 up and 2 down while EUR/USD traded 5 up months to 7 down. From 2015 to 2018, EUR/USD and SPX returned to a 1 and 2 month lead and lag time to up and down months. In 2018, SPX traded 8 up months to 4 down while EUR/USD resulted in 6 up to 6 down. In 2017, SPX traded 10 up months to 2 down and EUR/USD 9 up to 3 down. The SPX and EUR/USD relationship in 2016 deviated to a 2 month lead and lag by SPX 7 up months to 5 down and EUR/USD5 up to 7 down. In 2015, SPX and EUR/USD  returned to the 1 month lag seen in 2020 and 2017 as SPX traded 5 up months to 7 down while EUR/USD resulted in 4 up months to 8 down. The week EUR/USD for the week… Read More »FX weekly — DXY and 14 currency pair levels and targets

Markets Wall Street launched the final week of 2023 on a positive trajectory, extending the year-end rally that positioned the market on the verge of achieving a record high. And holding true to its historical form, the” Santa Claus rally” marches on as more dry powder enters the picture. A moderation in headline and core inflation has created a pathway for central banks to ease off on restrictive policies. As inflation subsides, the Federal Reserve sees higher real rates becoming increasingly economically unfavourable, possibly reducing the necessity for policy rates to remain in prohibitive territory. Despite the resilience of U.S. growth, there are indications of deceleration and vulnerability in crucial sectors. While several Fed speakers have tried to temper enthusiasm for rate cuts before Christmas, markets still see the March meeting as a possibility for the first move lower. Some investors anticipate a later timeline, but positive inflation results support the notion of earlier rate cuts. As 2023 concludes, many investors consider it a closed chapter, and for others who are still playing, there’s nary a persuasive sell signal in the tea leaves. Even with Mega Tech concentration risk hiding in plain sight but with yields still on an arc… Read More »Asia open insights: The bullish beat marches on