Bullard Views Eyed After Turbulent 48 Hours

US equity markets are expected to build on yesterday rapid improvement in risk appetite on Thursday, with futures higher by around 1% and closing in on all-time highs.

At times yesterday, not even the most optimistic of us could have anticipated that we’d be eyeing up record highs today, just the prospect of markets stabilising would have been a relief. Instead it’s been like Brexit on speed and it seems like for now, at least, investors are keen to focus on the positive aspects of a Trump Presidency rather than some of the more worrying pledges made during the campaign.

Fed Hike Back On With Trump Win

With the US election now behind us, attention returns firmly to the Federal Reserve meeting in December. Shortly after it became clear that Trump was going to become President elect and markets were in turmoil and deep risk aversion territory, the probability of a hike in the markets plummeted to around 50% from around 80% previously but, as with everything else, this quickly rebounded and now stands at around 71%. The absence of such a rebound yesterday and any kind of prolonged market turbulence would have made it very difficult in December for the Fed to have raised interest rates.


Source – CME Group FedWatch Tool

It will be interesting to see what James Bullard has to say on the last 48 hours when he speaks today. Bullard was not one of the dissenters at the last meeting but may have been open to a hike in December prior to the election. His colleague John Williams – who is not a voter on the FOMC until 2018 – earlier appeared to indicate that nothing has changed since the election.

EUR/USD – Dollar Takes Breather After Roller-Coaster Wednesday

Gold is holding up around $1,280 today, possibly being supported by the broader commodity risk rally, although it’s only trading marginally higher on the day. Given the outlook for interest rates, the dollar and the lack of risk aversion in the markets, I wonder whether we can actually see it significantly rally from here, in the absence of another major risk event. I wouldn’t be surprised if we see $1,250 coming under pressure in the coming weeks, especially if the Fed once again signals an intention to raise rates next month.

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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.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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