Morning Commentary: Entering the Gulag

Foreign Exchange - Morning Commentary
Entering the Gulag 
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets are continuing to consolidate and remain largely range bound and trapped within recent ranges (with the exception of oil prices). For the time being, markets have priced in enough negative news regarding the weakened state of the U.S. and global economy as investors look for the next guidepost which could come as early as next week’s Federal Reserve meeting on Wednesday. The U.S. dollar (DXY) has witnessed another day of low volatility and tight ranges.
Whether it is the U.S.-China trade talks, Brexit concerns, weakening global growth, or falling inflation, etc., investors remain anxious and nervous about the future path of the global economy. Continue to expect markets to remain on edge but confined to the same previous ranges until Wednesday’s FOMC meeting which could provide a short term spark. After yesterday’s soft U.S. CPI, market expectations have risen for the possibility of interest rate cuts for both the June and July FOMC meetings. G7 interest rates remain suppressed and are fractionally lower again today.
Oil prices have been the most volatile commodity over the past 48 hours relative to other commodities or asset classes. Yesterday, oil fell by nearly 4% on the back of reports indicating oil stockpiles rising to their highest levels since mid-2017. Today, that price decline is largely being reversed as two oil tankers have been damaged and suspected of being attacked in the straits of Hormuz. Other than the price of oil, expect more range bound price action.
  • Australia posted its May jobs data today. Job gains beat expectations rising by 43,200 but almost all of those job gains were part-time as opposed to full-time jobs. April job gains were revised higher, but once again, those gains were almost all part-time. The UR remained unchanged at 5.2% and the labor participation rate rose to 66%. Aussie interest rates are lower on the session.
  • The Swiss National Bank kept interest rates unchanged at -0.75% as largely expected. Markets were anticipating a dovish hold today with language and commentary citing increased risk to the Swiss and global economies. Instead, the language was more upbeat with upward, revised forecasts for growth and inflation. The Swiss franc is the top performing major currency today.
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