We are approaching the focal point for the week, which will be tomorrow US CPI data.
The Fed has been talking these last days on a regular basis and we’re getting a sense that there will be a higher probability of a 25bps rate hike in March and that 50bps is probably too much.
The end of the day has been good for US equities following on from the comments made by FOMC member Mester. As a voter for the FOMC this year she has more sway than the non-voters, so when she says that she doesn’t see compelling reasons to open the rate hike cycle with 50bps, the market listens. The initial reaction in the Nasdaq was a 30-point surge,
taking the futures up to 14980. This was backed up by the 10-year notes which also popped. The move in the fixed income markets was smaller as there is a 10-year Note auction in a little while. With regards to the Fed's balance sheet, which is full to the brim with US Treasuries, Mester said that the balance sheet is not the Fed’s primary policy tool. That falls to the price setting of the Effective Federal Funds Rate.
The US dollar index is caught in a very tight range and still within the down move bookended by the ECB press conference and the NFP print.
The forex heatmap shows the commodities pairs doing better than the greenback, pound, and yuan. With the rest of the pairs mixed. This is more risk-on and adds to the rise in the equities today. All of the major indices are green today with the Nasdaq leading the US higher with a 1.67% rise. Gold is resilient above the $1800 /oz and trading 1.46% higher over the last week.
The rise of Brent today after the US EIA weekly oil inventory data has meant that the last week's trading levels are still in the green even though today the price is slightly under the open. For Brent, the key pivot level is $90 and traders are currently buying the tests of this price level.
The last couple of days has been good for the AUDUSD as it trades higher in a very tight channel. I am expecting this to snap lower and maybe around the 0.72000 level before it gets to an old resistance level.
What may keep the Aussie traveling higher though is the ActivTrader sentiment which is showing a growing number of retail traders trying to short the Australian dollar. Until this cohort flips bullish or gets stopped out the AUDUSD could squeeze higher.