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From the Floor: Dollar whipsaws on CPI, FOMC — #SaxoStrats

   • FOMC 'less dovish than expected': Hardy
   • USD sinks following soft Wednesday CPI, spikes on FOMC
   • WTI prices drop past $45/b as inventories rise
   • 'We remain negative on the energy sector': Garnry
   • Gold supported around $1,250/oz due to geopolitical, macroeconomic factors

By Michael McKenna

Yesterday's Federal Open Market Committee release saw some interesting action in USD with the currency abruptly reversing higher after a very weak CPI (minus 0.1% versus 0% forecast and 2% previous). The spike came on the back of what Saxo Bank head of forex strategy John J Hardy calls a "surprisingly hawkish" outing from the Fed.

 "The US central bank was less dovish than expected, hiking rates by 25 basis points, leaving the dot plots largely unchanged, adjusting inflation forecasts lower, and outlining the path towards policy tightening and balance sheet reduction," says Hardy.

The post-CPI selloff provides an example of "markets trying to second-guess the Fed," says Hardy, pointing to a steep spike in the NZDUSD exchange rate as a notable example of such.


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Source: Saxo Bank 

On today's Morning Call, Saxo Bank head of equity strategy Peter Garnry said that he doesn't know "why the Fed doesn't just let inflation overshoot," adding that, as usual, he expects higher US rates to benefit financials with life insurance being the most sensitive sub-sector while leveraged sectors like telecommunications, real estate, and utilities will feel pressure from the move.

The biggest sectoral movement Wednesday, however, was seen in the energy sector where prices dropped 1.8% as gasoline inventories rose more than expected.

"The strong inventories report pushed WTI crude oil below $45/barrel," says Saxo Bank head of commodity strategy Ole Hansen, adding that while US production continues to rise, the pace of growth is starting to slow somewhat.

Elsewhere in the commodities space, Hansen reports that gold tracked the USD over the CPI and FOMC releases yesterday, spiking higher and then lower in negative correlation with USD.

"Gold remains supported be geopolitical and macroeconomic factors and sees support at $1,245/oz and $1,255/oz," he adds.

The back-and-forth in USD puts EURUSD in the crosshairs today with the pair trading around the 1.1190 area following the European bell.

This level, or slightly below, is where the euro is trying to fund support after EURUSD tumbled from the 1.1280 region after the FOMC release (it had spiked upwards from the 1.12 handle post- the CPI release).

Source: Saxo Bank 

According to Hardy, the pair must push back past 1.1275 to confirm the start of a bullish move.

Today's data calendar sees Bank of England out at 1100 GMT, although Hardy says that he is not sure what they can add to the GBP trade at this point given that it centres on what he terms a "highly chaotic" run-up to the Brexit talks set to launch Monday.

Divorce proceedings continue apace. Photo: Shutterstock

Michael McKenna is an editor at Saxo Bank 
Market Predator Market Predator
@PeterG: flattening of yield curve in long term (uninteresting of lending) is key message from GMC today. Great call 👍


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