Morning Commentary: Is the Worst Over for Now?

Foreign Exchange - Morning Commentary

Is the Worst Over for Now?

Share this story:
Alan Rose
Alan Rose
Foreign Exchange Head Trader
Emotional and near panic equity selling has appeared to have run its course and has been temporarily replaced by investors who again see value in the market. U.S. equities have had two huge rebound rallies over the past two days allowing for the first two-day back-to-back gains in over a month. The volatility index (VIX) has fallen sharply over the past three days as it appears that market sentiment and tone is better balanced between buyers and sellers.
A combination of factors has changed the market dynamics for the short term. For one, the White House has abated from their attacks on the Federal Reserve and, in particular, Fed Chairman Powell. Second and most importantly, the market is slowly pricing out almost all the Fed rate increases for 2019 and now forecasts a small probability of a rate cut in January 2020 despite recent pronouncements for more rate increases in 2019 from the Fed just over a week ago.
This change in interest rate dynamics is not only helping change the tone regarding equities/commodities again, but it is also exerting some downward pressure on the U.S. dollar. It is very interesting to note that the U.S. dollar (DXY) has weakened the past two days and that safe haven currencies (CHF, JPY) are very strong today as equity sentiment appears to have shifted. The USD/JPY, in particular, has been a mirror image of U.S. equity performance over the past two weeks; as U.S equities collapse and interest rates fall, the USD/JPY has moved in lock step lower and yet the JPY remains very strong in the face of stronger equity performance.
Market concerns about U.S. growth weakening in the future and the Fed remaining on hold could change the market dynamics regarding the future path of the U.S. dollar. The U.S. dollar could become vulnerable without the protection of higher interest rates; budget and trade deficits, a government shutdown, polarized Washington politics and the erratic and inconsistent nature of the White House could fuel further U.S. dollar weakness.
Markets are thin, illiquid and remain highly volatile; all of this could change in a moment’s notice, but the vulnerability of the U.S. dollar bears watching as we move into the New Year.
  • German CPI for December came in below expectations at 0.1%. YoY fell from 2.3% to 1.7%. Energy price declines are behind the benign inflation data.
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Investment and Insurance Products:
Are Not insured by the FDIC or any other federal government agency
Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
May Lose Value
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2018 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog