The US dollar reigns supreme across the board, with the recent worries about trade wars apparently being shrugged off amid stable to higher US yields and strong risk appetite in major equity markets.
Article / 22 September 2016 at 8:43 GMT

From the Floor: 'Hooray for central bank liquidity'

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  • I think this reaction is going to fade – Hardy
  • Volatility will continue to chop back and forth and go higher – Hardy 
  • Oil markets are very much headline driven – Hansen
  • Asian equities ended in a sea of green – Liu
  • A 'dovish hike' would have been better for gold – Hansen
 By Clare MacCarthy

The Federal Reserve hit the pause button last night, flagging a rate hike in December instead, and the dollar tumbled against a broad range of currencies while stock and bond prices soared. Several dollar-sensitive commodities have logged decent gains, as has crude oil which is drawing further support from falling US stockpiles, Saxo Bank's strategy team members report in today's morning conference call.

While the "rather dovish Fed" inspired Asian equities to sail higher "in a sea of green", the US dollar was badly bruised, reports Edmund Liu from Saxo's Singapore trading hub. "There was a knee-jerk rally for the dollar to start with but USDJPY then continued its decline, hitting a low of 100.09 in the Asian session." The greenback did badly against a bunch of other currencies too, most notably the Australian and Canadian dollars as well as the Swiss franc.

All these movements, of course, were in response to the Federal Open Market Committee's decision to keep US interest rates on hold. "It was a major disappointment, though the vast majority [of market participants] didn't expect a hike," says John J Hardy, head of Saxo FX strategy. But although three of the FOMC board members had wanted to press ahead with a hike yesterday this doesn't mean that the board is split going forward because all three dissenters are scheduled to give up their voting status in the New Year, Hardy explains. 

USDJPY: Obvious focus on 100.00/99.50 zone now.
 Source: SaxoTraderGO

And where do we go from here? "Theoretically the narrative returns to – hooray for central bank liquidity, let's dive into risky assets, let's send equities back to all-time highs because the central banks will never, ever take away the punch bowl," Hardy quips. But that's just theory. What'll happen in practice will likely be quite different. "I think this reaction is going to fade, be it today, in a week, a few weeks or after the US election." 

The reason, Hardy says is that much of the recent volatility derived from a growing lack of confidence in central banks' ability to "move the needle" and while that sentiment is temporarily overshadowed by yesterday's FOMC "it'll come back to haunt markets". Volatility, he concludes will not return to near record lows but will continue to chop back and forth and go higher.

CLX6 resistance at $45.95 followed by $47.10:
Source: Bloomberg 

Oil markets, meanwhile, remain very much at the mercy of media headlines, reports Ole Hansen, Saxo's head of commodity strategy. "We've had three weeks in a row where inventories have dropped, two of them by more than expected," he says. WTI is still hovering around the $45/barrel level – which it's been doing now for six months. 

Now that the twin central bank meetings are out of the way attention is turning towards next week's oil producers' meeting in Algiers which might or might not result in a deal to cap or curb production. Ahead of that, for oil prices, expect more of the same.

Gold, meanwhile, failed to lift of strongly on the Bank of Japan and Federal Reserve policy decisions and the outlook now is for a prolonged period of consolidation, says Hansen. Indeed, a "dovish hike" would have been better for gold as it would have removed some of the uncertainty "but now we have to wait until December" he adds.

 "Not quite yet but December might be a jolly good idea." Photo: Federal Reserve

Clare MacCarthy is deputy editor at

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Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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