Market Update – February 7, 2017
We are in the second trading month of the year and ranges are still dominating the Forex market. No matter where you look, with a few exceptions, markets are consolidating and it feels like everyone is expecting for something to happen.
In a way, a lot of things happened as economic news/releases were scheduled as usual. Already we had one ECB (European Central Bank) and FOMC (Federal Open Market Committee) meeting, not to mention two NFP’s (Non-Farm Payrolls) releases.
However, markets are not moving and the perfect example comes from the most popular currency pair of them all, and the most liquid one: the EURUSD. Volatility levels are almost at historical lows and, despite the fact that the ECB still buys bonds on a monthly basis under its quantitative easing program and the fact that the Bundesbank is forced to buy below the deposit rate of 0-40%, the EURUSD pair is not moving.
From the start of the year, the EURUSD was bid on every dip, but the pattern looks like a corrective one, due to reverse hardly. Fundamentally speaking, the ECB and the Federal Reserve are on two different paths: the first one is still engaged in a major easing cycle, while the Fed started a tightening one.
While there was no rate hike at the last Fed meeting, things are about to chance moving into the March decision. Next week we’re going to see Mrs. Yellen semi-annual testimonies and we’ll have more clues about what’s in store for the dollar.
Until then, the RBA (Reserve Bank of Australia) just decided the other day to keep the interest rate steady at 1.5%. This comes as a surprise to me as part of the RBA’s mandate is to keep inflation below or close to two percent.
However, inflation in Australia, the trimmed one (the one that doesn’t consider energy and transportation prices as these are considered to be extremely volatile) came at 0.4%, far from the central bank’s target. I guess the monetary policy statement that is about to follow in a couple of days will have to have a dovish tone to illustrate that.
Gold surging is certainly helping the AUDUSD pair as there is a direct correlation between the two. But I would say the next U.S. dollar move is the one that will define how currency pairs will trade this year.
After Mr. Trump’s election in the United States, the dollar only corrected for almost two months now: the USDJPY, AUDUSD, EURUSD and USDCHF pairs did exactly that. What if those corrections are completed?
