Markets second-guessing as Fed cuts interest rates
Wednesday 4 March 2020
Traders had been expecting an G7 announcement yesterday perhaps with a co-ordinated rate cut to combat the economic fallpout from Coronavirus as I had warned but in the end the statement suggested some flexbility for CBs to act as/when/how they thought appropriate. Cue the US Federal Reserve making a surprise 0.5% rate cut shortly after providing an immediate rally in equities and fall in USD only for the moves to be curtailed with equities quickly in retreat. I say surprise because as much to the timing rather than the size of cut which had been touted previously but with the RBA only going 0.25% in their own action.
The question I raised on Twitter at the time was why they went with such a pre-emptive strike given the Fed's previous stance on rate cuts. Was Powell under instruction from Trump and therefore seriously putting their autonomy in jeoprady or does the US really know more about the extent to which Coronavirus is kicking in ? Either way it's not good and markets have understandably continued to react wth risk-off sentiment prevailing. Plenty of US data later today to throw in the mix too.
GBPUSD duly found a top above 1.2830 again with EURGBP demand once again helping to cap/push GBPUSD lower (as I tweeted at the time) along with renewed GBPJPY and GBPCHF supply. Good 2-way business still whatever your bias.EURGBP remains underpinned amid the softer GBP/stronger EUR double-whammy and yesterday held up by the decent bids at 0.8680-85 (GBPEUR sellers at 1.1520) as I tweeted then rallying strongly again before once more capping at 0.8750 (GBPEUR support 1.1425).GBPJPY continues to see good two-way business albeit with a softer bias still amid all the risk off sentiment and rally-selling on core pairs.
I stay poised to sell GBP rallies and buy back in the dips as ever. As ever though, don't get too greedy as ranging returns after the recent volatility.UK Services PMI the data risk at 09.30 GMT and important as always given the sector's 80+% contribution to UK GDP. Breaking news: Data a tad softer as epxected and GBP does little in the immediate aftermath but will give BOE more food for thought.
USDJPY finally broke down through the decent demand at 107.30 and has looked at the next good support level of 106.80 before bouncing with traders, including me, happy to take some profit in the dips and I've duly re-sold shorts around 107.50.EURJPY also still contained in relative terms as core pairs both rally and fall.
EURUSD has enjoyed underlying strength still but not without some decent retreats after testing 1.1200. USDCHF has retreated again to post 0.9540 as EURUSD rallies but EURCHF capping around 1.0700 still albeit with underlying dip demand too with the SNB ever watchful.
AUDUSD tested the 0.6650 supply/resistance in the wake of the US Fed rate cut but has since fallen to test the support at 0.6580-85. Rinse n repeat. USDCAD is still being relatively contained by the softer USD/variable oil/CADJPY impact and has once again held 1.3320 after failing into 1.3400.
Fickle Forex markets ever prevailing so be ready to jump on moves with your entry/exit levels and orders as always.
Lots going on right now, and the foreseeable future, so don't forget that I offer 1-2-1 mentoring if there's areas of trading these volatile markets or how to make best use of the order boards and expiries, that you might need some further help with.
Have a good day out there one and all.
Interbank rates: 08.27 GMT