With no key distractions ahead of Yellen’s testimony tomorrow, markets are taking the path of least resistance. For equities, this still appears to be lower, with European equities down yesterday for the sixth consecutive session (looking at the Eurostoxx 50 index), with this being the biggest down-move since the first trading day of 2016.
The outlook for the global economy remains too uncertain, with the growth dynamics in the US also moderating, whilst the QE being undertaken by the ECB not seen as anything sufficient enough to act as a counter-weight to these external forces. As we mentioned yesterday, for FX this has resulted in a change of direction. It’s not about the dollar and the impending rate increases from the Fed this year.
After some wobbling, yesterday turned out to be about risk and more pointedly, risk aversion. This could be seen in the further strength seen in the yen, together with weakness in sterling. Having initially joined in the weakening against the dollar, the euro found some buyers in the European afternoon session, putting further weight onto the view that it’s more of a safe haven than funding currency in the current environment.
For today, we are seeing a steady to slightly firmer tone to equities at the start of the session, but the turn-around is currently tentative at best. The Japanese 10Y government bond is now displaying a negative yield for the first time ever, whilst the yen has seen a volatile session. USD/JPY was initially lower, although some of this strength has been erased for the start of the European session.
The data calendar is relatively light, with just UK trade data at 09:30 GMT, leaving markets at the beck and call of wider sentiment and clinging onto the weak hope that Yellen may somehow offer some support at her testimony tomorrow.
Disclaimer: This material is considered as a marketing communication and does not contain and should not be construed as containing investment advice or an investment recommendation, or, an offer of or solicitation for any transactions in financial instruments.
Past performance does not guarantee or predict future performance. FxPro does not take into account your personal investment objectives or financial situation and makes no representation, and assumes no liability to the accuracy or completeness of the information provided, nor for any loss arising from any investment based on a recommendation, forecast or other information supplied from any employee of FxPro, third party, or otherwise.
This material has not been prepared in accordance with legal requirements promoting the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. This communication must not be reproduced or further distributed without prior permission of FxPro.