Market Drivers
North America
A very quiet night of trade in FX today after yesterday’s massive anti-dollar rally in the wake of decidedly dovish tilt by the FOMC that suggested any further rate hike from the Fed will be on hold for the foreseeable future.
The majors mainly consolidated but ran into resistance at key levels as they could not extend their gains against the buck in Asian and early London trade. The EUR/USD ran into resistance and 1.1550, the Cable fell back from 1.2800 and USD/JPY found some support at the 108.00.figure. The only pairs that held up well were the antipodeans as both kiwi and Aussie continued to benefit from improved yield spread differentials.
With no major news on either side of the Atlantic today, the price action could be governed by technical rather fundamental considerations. The latest news from the US-China talks has produced little fresh results and the impasse on US government shutdown shows little signs of being resolved, although pressure grows on the White House every day as nearly 1 million federal employees continue to work without a paycheck. While most analysts haven’t yet factored this into their models, the falloff in consumer spending as a result of the shutdown could depress demand even further in what is traditionally already the slowest seasonal retail environment. While the consensus view is that the US government shutdown will only have a minuscule impact on US growth, the downside risks of a protracted political battle are almost always underestimated by the markets.
The North American calendar is barren today save for weekly jobless claims and volatility if there is any is likely to be driven by equity flows or headlines from Washington DC or London, but given that both the US shutdown and Brexit remain at an impasse, the slow churn of overnight could persist into US trade with same key levels keeping a cap on anti-dollar rallies for the time being.