The Fed’s raise in interest rates well flagged and coming in at the full 25 basis points level. Supportive for the US$ and therefore the Euro equity rally into the year end, at least. Levels wise the Eurostoxx 50 level of 32 played out perfectly to the script thus far. The GBPUSD also played out perfectly though today’s exceptional retail numbers out of the UK a great surprise and may cap US$ gains at least until more data emerges. I’ve literally just left the trade at today’s 1.4925 area support level, expecting a short term reversal in the next few days of the recent moves as participants adjust positions to today’s surprise data. (Previously quite a bearish sterling cftc position vs usd).
The Swiss team below.
The single large issue i’d like to mention is the bullish Euro expectation by the guys into Q1 2016. Its true the rumor has moved into news in respect of the Fed rate hike and technically the eurusd is showing some signs that a base is in. However, its a bold call as technically its not conclusive yet, see the GS tech report sighting the 1.1088 level as conclusive proof of the trend change. Until we get more evidence its an even bet at best.
There are also real interest rate returns for overnight interbank deposits now for US$ vs negative rates for Euros. Participants were still net long US$ before the news but not as long as they had been pre the ECB disappointment the week before (CFTC). For my money, the euro carry trade looks back on the table for now so therefore the US$ bull may extend onward here until data worsens in the US. Clearly this relationship plays heavily into the commodity trade, as does the EM bottom call, as does the cap on the eurostoxx50 rally. (Another correlated instrument the AUDUSD not showing clear signals as yet).
Also worth picking out this para as a caution note. Too much us$ strength and this bearish outcome increases in probability.
“On the other hand, if this bounce in energy and transport
should fail and we see these sectors breaking down in
January, it would be a really worrying signal; and in this
case we would also have to take into account a break of the
late September bottom in the SPX, which would be the
ultimate signal that a full size bear market is also underway
in the US.”
Here the Swiss team:
And here GS
Here MS usefully discussing the Euro Jpy support, at least vs commodity and risk EM currencies.
And here WF macro chart book for 2015:
Hopefully a good run now to the end of the year.
All the best
Rich