FX – Will FOMC Keep the Dollar Bid?

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Market Drivers November 8, 2018
China Trade data in line
FOMC on tap
Nikkei 1.82% Dax 0.38%
Oil $62/bbl
Gold $1223/oz.
Bitcoin $6500

Europe and Asia:
CNY Trade Balance 34B vs. 35B

North America:
CAD Housing Starts 8:30
USD Weekly Jobless 8:30
USD FOMC 14:00

The majors were mainly sideways in lackluster news free trade tonight but Brexit once again created drama in cable as the single currency was yanked like yo-yo between competing headlines.

The pound initially tumbled towards 1.3100 on a statement from Ireland’s Hogan who currently serves as an EU Commissioner for Agriculture and Rural Development. Mr, Hogan noted that Brexit agreement was unlikely in November if EU does not get proposals in the next few days.
Just as quickly cable shot up to 1,3140 on algo buying after headlines hit that EU officials believe that a Brexit agreement is within days. Overall the pair was largely unchanged, but the skittish price action indicated the market’s sensitivity to every word and action.

With time running out the pressure is on PM May to arrive at some sort of an orderly exit, but the wrangling over the Irish border could scuttle the much more important and bigger compromise on a customs union and financial services integration. For now the market continues to hold out hope that Brexit agreement will be signed, but the longer the negotiations the more nervous markets will become as the March 2019 begins to loom large in trader’s minds.

In North America today the calendar is quiet as well with only FOMC on tap later in the day. This should be a non-eventful meeting as the central bank is simply expected to reaffirm its guidance but any tempering of the language could send USDJPY for a spin. The market is conditioned to one rate hike every quarter and so far there is little in the US economy to suggest any material slowdown, but with Trump critical of Fed’s hawkish stance it will interesting to see if the Fed buck’s under pressure.

A strong reaffirmation of Fed’s policy stance could push USDJPY through the 114.00 figure while softening of language could see the pair dip below 113.50 as the day proceeds.

Boris Schlossberg
Managing Director

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