It’s amazing when hope springs eternal and markets cling onto something positive.
In this week’s case, it is the “Fed pivot”, a term which has even been trending on Twitter!
The huge rally in risk assets has pushed the dollar sharply lower after hitting multi-decade highs only a week ago.
Positioning has certainly big a major factor in this swift fall from the top, with the market severely overcrowded in long dollar positions.
Various possible reasons for trend change
There are probably a few recent events which can be reasoned for the moves we have seen this week to kick off the final quarter.
Central bank intervention in the form of currencies like the Bank of Japan and also in the government bond market such as the Bank of England meddling in the gilts market has stabilised areas of concern and meant there has been less safe haven buying. The smaller-than-expected rate hike from the RBA has also been flagged as a potential turning point for policymakers worldwide.
Whether this is a permanent pivot or just a temporary slowdown is the pertinent question.
There has also been some focus on the softer data coming out of the US.
The JOLTs job vacancy numbers fell very sharply last month, and way more than analysts predicted. The tight US jobs market has been a big factor in the Fed’s aggressive policy tightening path.
Anyone who has been in the US recently can’t fail to have noticed the “we’re hiring” signs everywhere. So, markets are clinging on to the hope that this may mean an easing in Fed rate hikes going forward.
EUR/USD peeking at parity
The world’s most popular currency pair has followed the blockbuster risk rally and is pressing up towards 1.00 with EUR/USD rising close to 5 big figures in a little over a week.
European assets have rebounded strongly but it’s tough to see much change in the broader eurozone economic landscape. Recent data has highlighted that the slowdown in manufacturing is intensifying across the major economies underscoring recession risks amid rising energy prices and slower global demand.
EUR/USD has pushed up above the September low at 0.9864 and the mid-July low at 0.99522.
The 50-day simple moving average sits just above parity at 1.00156 with long-term trendline resistance around 1.0090.
Cable confounds the critics and bears
GBP/USD has enjoyed six straight days of gains, a bullish move not seen since April last year.
Prices are now trading around a key zone of support/resistance. The pandemic low is 1.14098 while the short-term downward trendline from the August high sits just above 1.14.
These levels are all ones seen before the “mini-budget” which took place on 23 September, which seems like a lifetime ago.
The government’s fiscal reputation has been severely sullied with coups and policy disagreements abounding.
PM Truss’ speech later today will garner some attention.