Friday’s Market Is As Cold As The Weather

Capital Markets are trying to find their trading legs with participants yet to return to normal working conditions after the holiday shortened season. The northeast winter storm along the US and Canadian seaboard is not helping matters, guaranteeing even thinner trading conditions and liquidity remaining a premium. Next week, normal trading conditions should prevail with Friday’s NFP being the main event of the week. Will the US manage to keep their job momentum intact?

Several FED speakers are slated to speak at a conference in Philadelphia later today. Currently, the market expects what they say again to support riskier assets like equities. Few do not expect the FED to sway too far away from their recent rhetoric, reiteration of dovish tapering stance, buying of risk, allowing of bond yields to back up and the mighty dollar to advance against JPY (the patience trade of 2013), commodity currencies, and probably the EUR in the short term.

For now, the consensus risk scenario is “heavily weighted to the FED tightening earlier than advertised by forward guidance because economic slack is considerably less than indicated by Fed speakers.” Helicopter Ben and company (especially the doves) will be expected to push back on this train of thought today and in the immediate future. Policy members are required to portray a consensus force indicating that the FED are nowhere near to tightening policy rates – this would put a temporary stop to any further rise in bearish sentiment.

The dollar is ending the week consolidating most of Thursday’s gains against the EUR’s (1.3610-50) and GBP (1.6400 -50) while maintaining its weaker trend against the CAD (1.0610-40), AUD (0.8965-90) and NZD (0.8270-99).

Next week will be a different story; all hands will be on deck, a new playing field, but will the same game rules apply in 2014 as clearly as last year? Markets were handcuffed by Central Banks and have been for 18-months. With Helicopter Ben about to fly the coop will the old themes continue to dominate this year or are policy makers getting ahead of them themselves even with a token? Time will tell.

Happy New Year!

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell