Are Markets Behaving as Analysts Expected?

02/03/2016 9:00 am EST

Focus: CURRENCIES

Ilya Spivak, of DailyFX.com, explains that commodity dollars dropped while the Japanese yen and euro rose, RBA triggered risk aversion, and the upbeat UK PMI and hawish Fed-speak has threatened to cut short any risk recovery. Ilya also highlights two currency pairs now at critical levels.

The Australian, Canadian, and New Zealand dollars underperformed while the anti-risk euro and Japanese yen traded higher as sentiment soured in overnight trade. Investors’ mood darkened after the RBA delivered a status-quo monetary policy statement, as expected. The neutral posture undermined hopes for a further expansion of global stimulus efforts following last week’s top-up from the BOJ.

The post-RBA response underscores sentiment’s ability to trump macroeconomic fundamentals in the current environment. While the Aussie dollar initially rallied as rate cut chances ebbed, the move was swiftly dwarfed by risk-off momentum. Traders’ loud cheering for the BOJ’s very modest boost to policy support and stubborn commitment to a dovish Fed outlook are other symptoms of the same phenomenon.

Looking ahead, comments from ECB policymaker Benoit Coeure and SNB President Thomas Jordan will maintain the focus on monetary policy trends. Mr. Coeure’s remarks will be scrutinized for clues about a possible expansion of ECB QE next month. Those of Mr. Jordan may help inform bets on the Swiss monetary authority’s appetite for matching the efforts of its EuroZone counterpart as it struggles to ward off imported disinflation.

Sentiment may find a modicum of renewed support if the two officials’ comments buoy hopes for additional accommodation in the pipeline. To read the entire article click here…

By Ilya Spivak, Currency Strategist, DailyFX.com

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