Thursday’s Fundamental Forecast – 23rd September

US Dollar (DXY)


Key news events to watch out for today GMT:

German Flash PMI’s 7:30 AM

Events to watch:

SNB Monetary Policy Assessment 7:30 AM
GBP Official Bank rate announcement 11:00 AM

Important things that happened recently:

There were few fireworks after today’s Fed decision despite the dots jumping up significantly. The US dollar has been chiefly non-reactive, caught between the disappointment of no September taper announcement anchoring front-end rates and the sharper steepening in the 23 and 24 median dots, which is hawkish and should be dollar supportive, especially versus low yielders.

After the dollar knee-jerked marginally lower on the disappointment to some of no September taper announcement, the dollar then rallied broadly in the wake of Powell’s statement about the taper timeline that is still on course for mid-2022 conclusion and presumably a Fed hike soon after that.

The FOMC’s dot projections show all 18 members unchanged this year. Nine are unchanged in 2022, and nine are for a hike (six for x1 and three for x2). In 2023 only one member is unchanged, and 17 see a hike. In 2024 all have hikes pencilled in. On the medians, that gives 0.125% in 2021 (unchanged from July); 0.25% in 2022 (up from 0.125%), 1.00% in 2023, (up 1.5 hikes from July’s 0.625%), and then 1.75% in 2024, some 7 hikes by then. The longer-term view of neutral remains 2.5%. So, the median has moved up for 2022 – i.e. an earlier hike, and also, the pace of gains is faster than previously suggested.

US stock futures rallied hard overnight on improving global risk sentiment after headlines suggested Evergrande will make a coupon payment today. And this risk sentiment turnaround softens USD haven demand as evidenced via USDCNH, which is now trading on the 6.46 handles down from the 6.49’s

What we can expect today:

After buying the US dollar for the past week and with risk sentiment rebounding as Evergrande tumult gently abates, traders may use the hawkish dot plots to book long dollar profits

Forecast: Weak Bullish


GOLD


Key news events to watch out for today:
No key events

Important things that happened recently:

After shifting higher pre-FOMC, gold is trading softer in the wake of a more hawkish FOMC dot plot scenario.

What we can expect today:

The FOMC didn’t deliver the knock-up punch to gold investors as steady long-end yields are so far keeping “bid on the dip” gingerly alive.

But the hawkish shift from the Fed does suggest the gold market will become more sensitive to more robust US data, and that alone should keep investors nervous.

Forecast: Medium Bearish


Oil


Key news events to watch out for today:
No key events

Important things that happened recently :

 On Wednesday, oil prices settled higher after US crude stocks fell to their lowest levels in three years as refining activity recovered from recent storms.

What we can expect today:

The weekly draw in US crude inventories has helped to support oil prices despite lingering concerns about Chinese demand and the potential for the momentum of OECD demand to slow if covid cases pick up over the winter.

However, the resilience of oil in the face of broader market volatility is indicative of an optimistic medium-term view that should limit downside in all but the most extreme scenarios.

On the energy reflation story, which has lit a fire under oil bulls, China has begun loading up on LNG for the winter, which may exacerbate the global supply shortage and, by default, increase demand for oil as an alternative energy source.

Forecast: Weak  Bullish


The Euro (EUR)


Key news events to watch out for today:
German Flash PMI’s 7:30 AM

Important things that happened recently:

The Euro lost ground after a more hawkish tilt from the FOMC dots

What we can expect today:

The dollar could regain any lost ground today – primarily against those currencies backed by central banks with a more relaxed attitude to inflation like the ECB

Forecast: Weak Bearish


The Pound (GBP)


Key news events to watch out for today:
GBP Official Bank rate announcement 11:00 AM

Important things that happened recently:

With the BoE expected to toe a more neutral line, hawkish GBP bets continued to pare

What we can expect today:

Traders may take a breather ahead of the Bank of England as the market now bearishly digests activity implications following the UK Business Secretary’s warning of persisting elevated energy prices through winter

Forecast: Weak  Bearish


The Swiss Franc (CHF)


Key news events to watch out for today:
SNB Monetary Policy Assessment 7:30 AM

Important things that happened recently:

With risk sentiment bouncing back, demand for CHF has eased

What we can expect today:

The SNB is expected to hold the course today, so for the SNB, it’s business as usual, despite other central banks hiking rates or moving in that direction.

US 10 year yields remain anchored to 1.30 %, which doesn’t scream CHF weaker, but with the market more attuned to more robust US data, it may only be a matter of time.

Forecast: Weak Bearish


The Australian Dollar (AUD)


Key news events to watch out for today:
No key events

Important things that happened recently:

A rebound in risk lent support to the Australian dollar overnight.

What we can expect today:

A rebound in risk saw better USD selling into the FOMC after the Chinese property firm said it would make coupon payment due on 23 Sep, helping commodities and equities rally and propping up the Aussie. However, with a more hawkish tilt to the FOMC via the dots, Aussie shorts may need more convincing on the China front to give up the plot.

In the background, the Evergrande story is still playing out – also seen as a positive dollar story. Until that storyline is resolved, the market may still be mindful of buying US dollars on dips.

Forecast: Weak Bearish


The Kiwi Dollar (NZD)


Key news events to watch out for today:
No key events

Important things that happened recently:

It’s been a tag-a-long session for the NZD

What we can expect today:

With the lack of a genuine fundamental driver here, NZD seems to be tagging along with its commodity peers. RBNZ is ways away, and fears of keeping rates on hold have slowly but surely led to a further reduction in longs. AUDNZD has found a base around 1.03 for now, and I still think NZD is selling on rallies here, against 0.7105/15.

Forecast: Weak Bearish


The Canadian Dollar (CAD)


Key news events to watch out for today:
No key events

Important things that happened recently:

The Loonie benefited from higher oil prices and improving risk sentiment overnight

What we can expect today:

USDCAD remains the most volatile commodity pack, while liquidity and interest seem to stay on the lower end of the scale 1.2700 and 1.2900 remain psychologically pivotal.

Forecast: Weak Bearish


The Japanese Yen (JPY)


Key news events to watch out for today:
No key events

Important things that happened recently:

After initially printing a low of 109.12 early in the Asian session overnight, USDJPY rallied on news that Evergrande “resolved” a local bond interest payment (a PBoC liquidity injection post the holiday also helped). 

What we can expect today:

Traders may be caught between a rock and a hard place. JPY traders may struggle between buying US dollars on more hawkish FOMC dot plots versus the need for JPY haven demand. The Evergrande credit risk story does not evaporate on one coupon payment. So FX markets may err cautiously about chasing the US dollar higher until the US 10 year bond yields make some significant headroom above 1.30 %. A break higher in US yields would signal global risk is abating.

Forecast: Weak Bearish