Markets Higher Awaiting Fed Minutes for Signs of More Dovish Rhetoric

The US dollar is lower against most major pairs on Tuesday as North American traders rejoined the action following Monday’s holiday. The greenback is being sold across the board as the US-China talks move to Washington. US President Trump said earlier that the talks are going well, but warned that the March 1 was not a magical date. There have been reports about a possible extension to avoid increasing tariffs if both sides are close to an agreement.

GBP – Brexit Extension Boosting Pound

The pound was the biggest mover against the dollar, with sterling rising 1.13 percent on Tuesday as Prime Minister May is headed to Brussels. Her cabinet is firm that the new proposals will be enough to secure a deal, but the EU has remained inflexible on the terms of the agreement ahead of the meeting this week.

Opposition leader Jeremy Corbyn will visit Brussels on Thursday to present his plan with a main objective to remove a no-deal Brexit as a possibility.

The EU is showing some possible concessions about the timing of the exit, as Jean-Claude Juncker has said a delay beyond the European parliamentary elections in May would not be opposed, but the Uk has to request it, which they have not done.

GOLD – Gold Higher as a Natural Dollar Hedge as US Politics Heat Up

Gold touched a 10 month high with a softer dollar ahead of the Fed publishing the FOMC minutes giving the green light for the metal to advance. Gold is having a moment despite investors looking for riskier assets in search of yield. The safe haven appeal as political uncertainty in the US and abroad is keeping the yellow metal bid.

The US-China trade deal is near a breakthrough and with it the edge of the dollar as a safe haven is evaporating giving way to other alternatives that could hedge against US political risk events.

OIL – Soft Dollar and Saudi Over Compliance Keep Energy Higher Ahead of US Inventories

West Texas rose 0.84 percent while Brent was almost flat on Tuesday. Trade optimism has pushed prices higher with the combined factors of a softer dollar and higher global growth expectations.

West Texas Intermediate graph

Saudi Arabia has been the main driver of stability as the OPEC plus other major producers are cutting their output, with the kingdom making up for the shortfalls of compliance.

Trade war concerns put a ton of downward pressure on energy prices, and as the anxiety eases as the two nations get closer to a deal crude has been one of the main beneficiaries.

STOCKS – Trade Optimism and Walmart put US Stocks Higher

Global stocks were higher for the most part as Brexit headlines showed the possibility of concessions and comments from the US on trade were encouraging that a deal could be in the works in the short term.

US stocks were boosted by Walmart’s earnings with investors bracing themselves for the release of the Fed’s minutes on Wednesday. The central bank took a dovish turn and the notes form the January FOMC meeting will shed some light on what policy makers were discussing when they reached a decision to pause quantitive tightening.

After the Fed pumped the brakes on its interest rate hike path, other major central banks have turned from neutral to dovish as economic data has disappointed, with the trade war between China and the US a major factor in global growth downgrades.

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza