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Intermarket:
• SP Futures 4216 (+0.10%)
• EUSTXX 4143 (-0.36%)
• Crude Oil 70.58 (-0.67%)
• US 10YR 1.51% (-3.70%)
• EurUsd 1.1915 (+0.08%)
• UsdJpy 110.21 (+0.04%)
• DAX 15697 (-0.17%)
As we enter the last European open of the week, equity performance is mixed with outperformance in the Nasdaq vs underperformance in the Dow. Asian shares were able to recover some ground overnight. The more interesting move was in bonds: US bonds saw the largest 2-day bull-flattening move since November as traders discount the effects of FED tapering. VIX retreated to 17.75. USD continued to rise.
Gold continued falling post FOMC, breaking through the $1800 level decisively.
In effect, it seems the whole “reflation trade” is being unwound these days, causing an increase in volatility and squeezing stale positions. A breath of fresh air for traders that have been waiting for some much-needed volatility.
Looking ahead: with no influential data due, markets will continue to digest the post-FOMC moves, with many traders watching the flatter yield curve.
Matters that Matter:
• USD consolidates week’s hefty gains, no surprises from BOJ
• Gold ticks up but eyes worst week since March 2020 after hawkish Fed
• Fed reverse repo volume soars to another record after rate adjustment
Majors 1-Day View:
Comment: reflation trades are being unwound now that the FED is starting to think about policy normalization. Gold and other precious metals are dropping, the US dollar and the Yen are moving sharply higher, and the US yield curve is flattening as the short end is discounting higher rates, while the long-end is discounting less inflation.
USDJPY
Despite posting fresh monthly highs above 110.70 on Thursday, sellers returned to market, prices declining to post an “inside day”. With the trend of higher daily lows still intact, this move is seen as corrective, and leaves signals more mixed for Friday. The preferred bias is to buy on a dip towards the Jun 16 low at 109.80. But alternatively, rallies towards 110.60 may also encounter sellers on the first attempt.
EURUSD
Prices posted the 2nd range expansion in a row on Thursday, with prices declining 1 Big Fig, reaching just beyond 1.1900. As such, signals maintain a short bias into Thursday but with extended readings on momentum, pullbacks are favoured towards yesterday’s Marabuzo at 1.1957.
AUDUSD
Since exiting the rangebound environment, prices have posted losses of over 2 Big Figs, declining past the April lows at .7530. As such, prices remain bearish for Friday but with some caution as momentum readings are extended and pullbacks are to be expected.
GBPUSD
Prices posted the 4th lower daily low in a row on Thursday with losses of over 1 Big Fig. As such, the bias remains negative for Friday and selling into rallies towards today’s Asia top remains the favoured play for today.
USDCAD
Prices posted the 6th higher daily low in a row on Thursday, with gains of over 1 Big Fig. As such, signals remain positive for Friday although caution is advised as momentum is extended and pullbacks are to be expected.
FX Relative ATR Grid
Comment: volatility levels remain elevated into Friday, but with extended ranges at the weekly level now, we expect a more tame behaviour on Friday.
FX Relative Strength Grid
Comment: the strongest trends are currently USD (bullish), NZD (bearish), EUR (bearish). The strongest momentum was seen yesterday in USD (bullish), JPY (bullish), EUR (bearish), CHF (bearish).