Market shrugs off news
The tone for the first few weeks of 2018 is already being set and it seems it will be no different from the past few months. It is unrealistic to expect the market to be driven by a whole new range of factors simply as it is the start of sa new year although, generally, traders are more galvanized in January wanting to get off to a good start.
The BoJ meeting this morning left rates unchanged as expected although Governor Kuroda could create a small tsunami if he again mentions the “reversal rate” in his press conference this morning. The “reversal rate” is the rate at which ultra-low interest rates start to do more harm than good to the economy. Given the low interest rate policy that Japan has had for decades it will be interesting to understand why the BoJ is now highlighting concerns unless it is as a prelude to a hike in rates.
The pound was unchanged yesterday trading in a narrow range versus the dollar. Against the common currency it again tested resistance at 1.1380 but was again repelled. The news about financial services following Brexit was largely shrugged off as something that was both likely to happen and a matter for January.
GDP Only Item left
Macroeconomic data has, in general faded as a driver of currency movement is 2017. We have had the monthly U.S. employment jamboree, but overall, possibly due to advance guidance, data has taken something of a secondary role.
The fact that data releases when looked at as a conglomerate on a month by month basis usually add up to Central Bank’s monetary policy decisions, the propensity for advanced guidance has taken away the surprise element somewhat. Perhaps that will change in the New Year, particularly in the US and UK where for different reasons advance guidance will be reined in somewhat.
Jerome Powell, the new Chairman if the Federal Reserve, and the world’s most powerful Central Banker, despite being a lawyer by profession, is likely to steer clear of “giving too much away” since his training is to only reveal what he must.
In the UK, the BoE Governor has probably been chastened by the reaction to last month’s rate hike which gave the impression that he had “painted himself into a corner”. Mark Carney will also probably be a little more circumspect going forward.
Can commodities make a comeback?
2017 has been a relatively quiet year for both gold and oil. The yellow metal has been in the doldrums as investors turn towards cryptocurrencies. As a store of value, the lustre of gold is fading somewhat, and it is starting to be considered as “yesterday’s trade”. The monthly ranges this year have been the narrowest for some time. The last major move was lower in November of 2016 and it has taken the whole of 2017 for that fall to be reversed. Over the fourth quarter the rate has barely moved.
Oil is, of course, far more volatile, with more drivers to provide dealers with encouragement to trade. Being a consumable product, oil is driven by demand as well as scarcity of supply. With Iran now exporting again the price has been somewhat depressed although it has now risen well above the $50 level that is considered pivotal.
While currency markets continue to have high liquidity and sufficient volatility it is hard to see why commodities like precious metals and oil can make much of a comeback, unless there is a major shock, like tensions between Saudi Arabia and Iran moving to something more than exchanging barbed comments, particularly over their involvement in Yemen, where they are fighting a proxy war