Jay Powell’s dovish holiday surprise

A dovish pivot 

The market sensitivity to Fedspeak was on full display overnight when Jay Powell comments at the Economic Club of New York were latched as overtly dovish


Suggesting that a pause in the rate hike cycle is a lot closer than what’s currently priced into the curve. In other words, the markets are reducing the probability of 2019 hawkish quarterly US interest rate rises.

Traders are interpreting this as a departure from FOMC statement where the market thought Powell suggested the Fed was prepared to move into restrictive territory if data supported. And the price action has been very predictable, US Treasuries and US equities are acutely higher while the USD is being sold across the board.

A significant reversal of fortune on the EUR which was one of the more popular shorts in the market while the high beta G-10’s risk-correlated currencies like the Aussie and Kiwi are soaring.

The prospect of a Fed pause was just what the equity market doctor ordered and boosting investor sentiment. Powell’s dovish pivot reduces nagging concerns about vigorous interest rate hikes while providing the market with one of the best holiday gifts, a significant bounce in global equity markets.

Oil markets, headline roulette 

Despite improving risk sentiment on softer Fed rate path along with Powel de-emphasising financial stability risk sentiment, Oil market continues to struggle after what could best be described as a half-hearted attempt to rally overnight. Indeed, the market does have that WTI Sub $50’s feel about it on the back of the 10th straight weekly rise in U.S. crude inventories despite what OPEC and their allies ultimately decide on the production cut front. But, is it: United we stand, divided we fall.” when it comes to OPEC and OPEC +

All eyes are on the upcoming G-20, where it’s likely a rebalancing agreement gets put in place relegating OPEC/OPEC + producer meeting in Vienna to little more than a rubber stamp formality

Beware of the headline roulette wheel as we should expect a flurry of headlines in typical OPEC fashion. And not to mention the breadth of opinion and the lack of consensus on the direction of oil prices should ensure volatility remains high for some time. So, buckle in this could be an intense roller coaster ride over the next few weeks

On the recent Blomberg survey, Thirty-one of 36 analysts and traders in a global poll predicted that the coalition of producers known as OPEC+, led by Saudi Arabia and Russia, will announce output curbs when it gathers on Dec. 6 to 7. The average estimate for the size of the cut was 1.1 million bpd.

I won’t mention who one of those five lone wolves were, but then again, I always price in the most significant tail (oops I just did)

Gold Markets

A surprisingly softer Fed and the predictably weaker dollar triggered a substantial rally in the precious space as both Gold and Silver pushed higher but holding back further topside ambition is the fact Equities are enjoying this move.

Currency Markets

Fairly sustained dollar dump as the EURUSD is trading near the highs of the day, (at time of writing) But the big movers and I mean eye-catching movers are the NZD and AUD on beta risk correlation. But keep in mind short Aussie was a well-subscribed proxy trade to express negative trade war is. So, I think a double whammy effect with a de-escalation of trade war risk coupled with dovish Fed pivot may have contributed to the outsized move.


Oil prices continue to weigh negatively however given the softer Fed tone; we should see the MYR bond markets play catch-up to regional peers as Asian bonds (such as THB, IDR, INR) have rallied for the past month. However, MYR bonds have lagged with the Ringgit continue to struggle. However, we should see a decent investor demand into the 5 Year MGS auction which could trigger an unexpected rally on the Ringgit.


Join Stephen live today at Media Corp  in Singapore

at 6:50 AM Singpore 938 NOW  discussing overnight events

at 7:40 AM Singapore Channel News Asia  discussing OIl and Currency markets


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.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes