• Rates: Fed doesn’t change direction
    The Fed hardly changed its policy statement yesterday, leaving the door wide open for a December rate hike. US Treasuries faced some minor selling pressure towards the end of trading. Oil prices and stock markets are at important technical levels. Some caution could prime in today’s trading going into the US long weekend and favoring core bonds intraday.
  • Currencies: Dollar extends rebound as Fed stays on track
    Yesterday, the dollar again outperformed other majors. Dollar momentum even improved further as the Fed didn’t show any intention to slow its rate hike path. EUR/USD is again nearing the 1.13 key support area. A new test might be on the cards. Sterling continues to profit from hope on a EU-UK Brexit deal in the very near future

The Sunrise Headlines

  • US stock markets lost ground yesterday. Only the Dow Jones (+0.04%) was able to keep its head above water. Asian equities follow the deteriorating risk sentiment and open in red. Hong Kong (-2.3%) underperforms.
  • UK PM May will try to convince her ministers to back the Brexit deal taking shape in Brussels on Sunday, including an agreement for the Irish border. If talks succeed, the target date for a special Brexit summit is set on Nov 25th.
  • Manfred Weber, a German conservative and EP member, has been chosen by Europe’s coalition of centre-right parties (EPP) to be the lead candidate, or ‘spitzenkandidat’, in the 2019 race for the European Commission’s presidency.
  • The US Federal Reserve has left its policy rate unchanged at 2.0%-2.25% and little altered its policy statement. It repeated the strength of the US economy, removing the last doubts of a December rate hike, which is discounted.
  • China’s producer inflation decreased to 3.3% in October, from 3.6% a month earlier, to slow for a fourth month in a row on a lower domestic demand and manufacturing activity. Consumer inflation printed at 2.5%.
  • USD/CAD tests the 1.32 area on a combination of dollar strength and loonie weakness. The latter suffers from a weaker oil prices and as a Federal Court this morning blocked the Keystone XL Pipeline Project.
  • Today’s economic calendar is richly filled in the UK (GDP, industrial production) and the US (PPI, Michigan consumer confidence). First Fed governors speak after yesterday’s policy meeting

Currencies: Dollar Extends Rebound As Fed Stays On Track

USD extends rebound post Fed

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The impact of the US midterm elections faded further on Thursday. The forecasts of the EC accentuated the difference in view between the EU and Italy on next year’s Italian growth and on the country’s budgetary performance. It was a marginal negative for the euro. In US trading, the dollar captured a better bid going into the Fed decision. The FOMC left the policy rate unchanged. The statement was little changed. Further gradual rate increases are likely. The USD-rally accelerated after the Fed decision. EUR/USD closed the day at 1.1363. USD/JPY finished at 114.07. The rise in US yields and the dollar also weighed on US equities. This morning, Asian equities are also trading in the defensive in the wake of yesterday’s Fed decision. Chinese equities continue to underperform. Most regional currencies are losing ground, but the decline remains orderly. USD/CNY trades near 6.9450. The dollar is well bid across the board. EUR/USD trades in the 1.1345 area. USD/JPY is trading just below 114. Today, there are few data in Europe. In the US, producer prices and U of Michigan Consumer confidence will be published. PPI is expected at a modest 0.2% M/M and 2.5% Y/Y. Michigan confidence is expected to hold slightly below the cycle peak. We don’t see much reason for a negative surpise. The question is whether the ‘formal’ confirmation of further Fed rate hikes will be enough to push US (10-y) yield and the dollar beyond next resistance. The jury is still out. However, with the US 2-y yield nearing 3.0%, the dollar looks quite well protected. Earlier, this week, uncertainty on the US election weighted on the dollar. EUR/USD rebounded 1.13 area to the 1.15 area, but the dollar correction had no strong legs. EUR/USD is again heading for the bottom of the 1.1621/1.13 trading range. A sustained break is not evident, but USD momentum remains constructive. Lingering tensions on Italy remain a euro negative short-term. USD/JPY is also nearing the 114.54 top. A break might be less easy if sentiment on risk remains soft.

Sterling profited this week from headlines that a Brexit deal might be close, even a the issue of the Irish boarder remains a high hurdle. There are also plenty of UK data today including the Q3 GDP. Day-to-day sterling momentum remains positive. EUR/GBP nears/tests the (0.8723/0.8681/0.8621)-support. We have the impression that sterling already discounts quite some good news. Further sterling gains might be become more difficult, unless PM May can prove that her cabinet will approve a deal

EUR/USD: dollar reaccelerates post Fed. A new test of the 1.13 EUR/USD support might be on the cards

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