Stalling Markets A Temporary Pause

The US dollar sell-off stalled overnight, with the beleaguered greenback recouping some of its recent losses. Precious metals and equities also took a staycation after impressive recent gains. Mixed US earnings, a fall in US consumer confidence, fiscal stimulus negotiations, and the upcoming FOMC announcements combining to take the edge of the recent buy everything momentum.

In the greater scheme of schemes though, the reversals overnight look more of a temporary blip, rather than a structural turn in sentiment. The street has got so used to one-directional price movements since March, that the merest hint of discord sends traders to the exit door. The underlying drivers of the US dollar rotation and the rally remain intact. That is negative real yields across the globe, most notably the US, and infinite amounts of central bank money looking for a home.

I am not overly concerned about the alleged stall of negotiations in Washington DC over the follow-on stimulus package. With an election in November, neither side has an interest in being painted as the bad guy by delaying a solution. Politicians potentially losing their jobs is a strong incentive to get something done.

Federal Reserve on deck

The Federal Reserve will not rock the boat and should continue to reassure markets with an uber-dovish tone. On the US earnings front, poor results by consumer discretionary companies should surprise precisely no-one in 2020. All will be forgiven though if tech heavyweights Amazon, Apple, Alphabet and Facebook report steady results tomorrow. I do, however, acknowledge this as a significant risk point if they disappoint.

Covid-19 remains a primary concern, with the secondary outbreaks occurring across developed countries where the virus had previously been brought under control. An escalation followed by the renewal of severe movement restrictions could see the much-feared secondary wave double-dip recession occur. That has not been priced into markets remotely unless you are talking about precious metals. But as yet, we are not at the double-dip stage.

The data calendar across Asia and Europe is strictly second-tier today, with the main event being the FOMC rate decision and accompanying statements this evening. As I have stated, the Federal Reserve will do nothing to rock the boat. Tonight’s US EIA Crude Inventories may spark come fireworks in energy markets though. The rally in oil has stalled with prices moving sideways this last week. A jump in crude inventories or gasoline stocks could spark a downward correction, flushing some stale long positioning from the market.

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.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)