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Dollar hits 1-year lows vs. yen as risk aversion mounts The dollar fell to the lowest level in a year against the safe haven yen on Wednesday as oil prices fell to fresh 12-year lows, adding to fears over slowing global growth.
USD/JPY hit lows of 116.10, the weakest level since January 2015 and was last at 116.21, off 1.23% for the day.
The dollar was also weaker against the safe haven Swiss franc, with USD/CHF sliding 0.28% to 1.0004.
Oil prices fell to the lowest level since 2003 on Wednesday, falling below $28 per barrel after the International Energy Agency said in a report that the supply glut in markets looks set to last until at least late 2016.
The drop in oil prices, which are down more than 70% from their 2014 high, has fueled mounting risk aversion, sending global equities sharply lower since the start of the year.
Fears over the global economic outlook escalated after data on Tuesday showed that China’s economy expanded 6.9% in 2015, the slowest rate of growth in 25 years.
The low-yielding euro gained ground against the greenback, with EUR/USD rising 0.45% to 1.0957.
The pound remained on the defensive, trading near seven-year lows after dovish comments by Bank of England Governor Mark Carney, who indicated Tuesday that U.K. interest rates are likely to remain on hold for longer.
GBP/USD eased 0.17% to 1.4134, near Tuesday’s lows of 1.4128, the lowest since March 2009.
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AUD: 'All Roads Lead To More Downside Risk': Where To Target? - ANZ Markets are moving ahead of the AUD, such that January’s currency decline does little to realign valuation, notes Australia and New Zealand Banking Group (ANZ).
"Fundamental drivers may become less supportive at the margin as expectations adapt to recent positive data surprises and iron ore resumes its decline.
Sustained weakness in broader markets and the continued running down of global currency reserves will keep the AUD on the back foot," ANZ argues.
SO ALL ROADS LEAD TO MORE DOWNSIDE RISK:
"In a market where volatility remains heightened, policy uncertainty elevated, and liquidity continues to tighten via declining reserves, the AUD should continue to decline, and as in previous occasions the AUD should trade at a discount to other risky assets. (ie The AUD should have a negative premium in our model). This is something that we have not yet seen this cycle," ANZ adds.
ANZ targets AUD/USD at 0.67 by end of Q1 and at 0.64 by end of the year.
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Draghi Drives Euro Lower ECB President Draghi has sent the euro back down into the lower end of the recent range as he gave a strong signal that additional action could be delivered as early as March, the next meeting. The euro had approached the upper end of its range yesterday and now is slipping through $1.08.
Draghi embraced and defended the ECB's action but clearly and unequivocally opened the door wide for more action. By indicating that rates will remain at current low level of lower is a signal that the -30 bp deposit rate has not exhausted room for more cuts.
He asserted that the ECB has the "power, determination and willingness" to act. This is important because some have argued that the mild action in December meant that the ECB no longer had the will or means to take bolder action. Draghi is trying to refute this impression.
Moreover, Draghi argues that the downside risks have materialized in recent weeks. The worsening of the conditions requires a review and reassessment of the ECB's stance. Review is straightforward. It is evaluating the impact of the actions. The reassessment refers to deciding whether more action is needed. It is clear that Draghi thinks it is necessary.
The ECB has a mandate. He is committed to it. Draghi reiterated that the ECB will do "everything necessary to meet its mandate." The new staff forecasts that will be available in March will likely show that more effort is needed to reach its inflation mandate.
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Quant Models: Risk On But Moderate Your Expectations - BofA Merrill Risk on: Draghi boosts sentiment like he did in Oct 2015.
In our view, the Jan 21 ECB dovish surprise may mark positive turn in sentiment and the return to a risk on environment. Back on Oct 22 2015 Draghi surprised financial markets that were still reeling from China devaluation with a dovish message from ECB. In trust, this led to positive sentiment and heightened expectations for the December meeting (Chart 8), similar to what’s happening now with respect to the March meeting. However, ECB was not able to deliver enough for the newly overoptimistic expectations at the next meeting. Markets overreacted to perceived inactions of the central banks, precipitating the return of negative sentiment, risk-off and low expectations for the January ECB meeting. The pendulum had swung too far.
Moderate your expectations.
The take-away lesson for the markets is to have moderate expectations for the 3/10 ECB meeting. In our view, risk assets should outperform over the next 6 weeks as markets realize they may have overreacted in December. Still, the risk is that too much focus on the next meeting may lead to possible disappointment once again and continued volatility.
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USD: FOMC Followed By GDP And Wage Data, Buy Dips - Credit Agricole A rate pause is widely expected at the January FOMC meeting and the policy statement is not expected to deliver significant changes.
The Fed is likely to uphold a constructive view of the economic outlook despite the Q4 growth slowdown and market selloff while keeping a cautious eye on inflation developments, especially inflation expectations. Rate expectations have been falling considerably since the start of the year and with markets pricing in only one Fed hike, we think that investors' expectations have been revised down significantly already. It may take a very dovish Fed statement, something we do not expect, to see USD lose ground on a sustained basis across the board.
In terms of data, the main focus will be on the advance Q4 GDP print, which is likely to indicate a sharp slowdown from the 2.0% pace in Q3. However, given its backward looking nature we anticipate only limited currency impact.
Overall we expect the USD to remain a buy on dips.
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Sterling Hit By 'Fear Factor', Where To Target? - CIBC Although sterling has been less correlated with global growth fears in the past than many other currencies, the UK’s large current account deficit and uncertainty over the country’s place within the EU have made it more susceptible to the recent risk-off sentiment.
After the EU leaders’ summit on February 18-19, the run to a referendum on the UK’s membership should begin. Given the campaigning and legislation required, we would expect the vote to occur by the end of June. And with the decision likely to be a very close call, much like the 55-45% vote in the Scottish referendum, uncertainty will remain a headwind for sterling through the first half of the year. Given that backdrop, investment flows into the UK may be delayed which reduces demand for the currency. Given its large current account deficit (Chart 5), that has made the currency one of the worst performing majors year-todate against the USD.
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Top 5 Things to Know In the Market on Tuesday 1. Oil prices turn higher after falling below $30
Oil prices turned higher in North America trade on Tuesday, as bargain buyers sought cheap valuations after futures sank below the $30-level overnight.
U.S. crude was up 17 cents, or 0.54%, to trade at $30.51 a barrel by 11:25GMT, or 6:25AM ET, after hitting a session low of $29.26, while Brent rose 22 cents, or 0.7%, to $31.51.
Gains were expected to remain limited amid ongoing concerns over a global supply glut and slowing demand.
2. China stocks plunge 6% to end at lowest since December 2014
China stock markets fell sharply on Tuesday, with the Shanghai Composite plunging more than 6% to end at a 13-month low, after a late bout of panic selling triggered by intensifying global growth concerns and ongoing weakness in oil prices.
The rest of Asia closed deep in the red, as oil prices sank back below $30 a barrel. Japan’s Nikkei 225 slumped 2.35%, while markets in Hong Kong and South Korea lost 2.4% and 1.15% respectively.
3. European shares pare losses as oil turns higher
European stock markets came off the lowest levels of the session on Tuesday, as crude oil prices battled back to return above the $30-a-barrel level.
European shares were down almost 2% after the open, tracking losses in oil and Asian markets.
4. Dow futures fall, but recover from triple-digit loss
U.S. stock futures pointed to a lower open on Tuesday, but have erased steeper losses that came after sizable falls for oil and Chinese markets.
The blue-chip Dow futures shed 27 points, or 0.17%, after being down more than 100 points earlier. The S&P 500 futures slumped 5 points, or 0.23%, while the Nasdaq 100 futures dropped 14 points, or 0.33%.
On the data front, the Conference Board will publish data on January consumer confidence at 10:00AM, with market players expecting the index to hold steady at 96.5.
Traders also looked ahead to the Federal Reserve's two-day monetary policy meeting due to begin later in the day.
5. Apple (O:AAPL) reports Q1 earnings after the closing bell
Apple is due with its fiscal first quarter results in after-hours trade Tuesday. The iPhone maker is expected to report a profit of $3.24 a share on revenue of $76.4 billion.
Investors were anxious to hear how many new iPhones were sold during the holiday quarter and its guidance for the current three-month period.
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US FOMC Preview: Powerless to Fight Foreign Foes, Yellen Left Twiddling Her Thumbs Having taken a bold bet on the resilience of the domestic economy six weeks ago by increasing benchmark short-term interest rates for the first time in a decade, policymakers at the Federal Reserve (Fed) now find one half of their mandate threatened by factors they have little power to combat.
Increased global economic and financial tensions are threatening the US economic recovery. When faced with a similar predicament last summer, Chair Janet Yellen and her colleagues looked through the rise in volatility and even past some weakening in economic data.
Although things settled down after a few weeks, the repeated flare up and lingering concerns about the outlook underscore the difficulties of the task at hand - normalizing interest rates without crashing the economy.
The next message from a re-shuffled Federal Open Market Committee (FOMC) to markets on Wednesday afternoon will once again attempt to strike balance between increased external risks and continued strength in US labor markets.
Nevertheless, officials will not follow-up last month's lift-off with another 25 basis point increase in the target for the federal funds rate, opting instead to wait and see how data evolves over the next few weeks before making any assertions about the March meeting, which has been flagged as a candidate for the next rate increase.
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UK GDP Preview: Downside Risks to Timid Rebound at 2015 End The UK economy is expected to have grown at a slower pace in 2015 than first estimated. The business surveys have been showing the rebound in the main output pillars of the economy - construction, services and manufacturing - were more or less solid, but lacked any excitement during the fourth quarter.
The median estimate ahead of the first estimate of the UK's fourth-quarter GDP growth suggests the economy picked up pace to 0.5% from a downwardly revised 0.4% in the third quarter.
The Office for National Statistics (ONS) is releasing fresh data on Thursday. Readers should note that the first estimate is composed of only less than 50% of the data available at the time of release, and includes only the output side of GDP, so the headline figures are subject to revisions. Expenditure data are included in the second and third estimate.
In his comment sent ahead of the release on Wednesday, IHS Global Insight's UK chief economist Howard Archer argued that the quarterly growth "could well have been limited to 0.4%" during the final three months of 2015.
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BOJ's Kuroda says they will lower rates further if needed Bank of Japan governor's presser now underway
Even more so now I'd say after the BOJ's move
USDJPY higher on the headline. Currently 120.74. EURJPY 131.66 helping to underpin EURUSD and other yen pairs.