A few short hours stand in the way of the long holiday weekend for many. The capital markets are retracing the recent moves. This means equities and commodities are lower. It means bonds are firmer and the dollar stronger.
The markets response to the ECB and FOMC recent meetings was to extend trend moves. However, this entire week has been the counter. The foreign exchange market illustrates this point.
The euro is recording a lower high for the first consecutive session and a lower low for the fourth. The dollar’s performance against the yen is identical. Sterling has given up all the gains since the FOMC meeting.
The US dollar has risen through a down trendline in the Canadian dollar. We have been anticipating the greenback to bottom, and it has been tricky. However, with the trend line being violated, it looks like the recent CAD1.2925 may indeed be the low. Potential now is toward CAD1.34.
The Australian dollar finished last week on its lows, encouraging ideas that a top was in place. It was approached yesterday before the sharp decline, leaving an outside down day in its wake. Follow through selling has seen the Aussie’s losses extended this week to two cents from last Friday’s high. The low from the March 16 when the FOMC met was near $.07415.
We suspect there are two things taking place. First, a technical correction and position squaring ahead one of the longest stretches of the year that markets are closed in many European centers. Second, there are two important macro developments in recent days: Fed talk and Brexit angst.
Some portray Fed talk as some kind of mutiny. This is not a particularly helpful claim. The FOMC meeting was aweek ago, and there was only one dissent for a hike. Given the lack of much data since the FOMC meeting, one must assume that the Fed Presidents did not change their views.Yellen herself noted that the April meeting was live.