The Fed will avoid at all costs taking a victory lap as we enter the end of the beginning phase of the recovery.

Not much to glean so far in Asia as topical discussions remain squarely centered on the FOMC and volumes are shallow, but a few  shops are getting their last licks in ahead of the FOMC
 

Currency markets are finding their mojo again after Bizzaro ran roughshod over FX markets yesterday. There seems to be a consensus-building that despite the improvement in the US jobs data, the Fed will avoid at  all cost taking a victory lap  given we are on the precipice of  entering the end of the beginning phase for the global recovery

Both China’s headline CPI and PPI fell further in May. This may lead to more concerns about deflation and could imply more pressures to loosen monetary policy. The People’s Bank of China has turned less dovish as the bar for easing has risen, given improving data. But it is far too early to expect tighter monetary policy response, and traders believe the central bank will continue its supportive stance this year.

It’s probably still a bit early, but we can expect more speculation on what a Democrat presidency could look like for markets if the polls continue to move in Joe Biden’s favor. Billionaire hedge fund manager Paul Tudor Jones is the latest to offer a view, seeing a tax hike of 2-3% of GDP if the Democratic candidate wins. This is horrible for US exceptionalism, and with the US dollar haven appeal quickly evaporating as US interest rates market volatility continues to fall,  the path of least resistance for the EURUSD could be higher. As the US and EU  political differentials start to favor the EURO, a push through 1.1500 to 1.2000 into the US election is possible if the polls continue to support the Democrat presidential candidate and US exceptionalism wanes accordingly.

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