Today’s Forex Market: Negative GDP Figures, Dovish FOMC and API reported falls

February 23, 2017

Trading Ideas For The Day from Marshall's Daily Digest.

Today’s Forex Market: Negative GDP Figures, Dovish FOMC and API reported falls

Pound mean Reversion Today?

The pound was the worst-performing G10 currency over the last 24 hours after the revised Q4 GDP figures showed business investment growing more slowly than expected but net exports higher.

However, both these effects were caused largely by a revision to the data for non-monetary gold.

As investors read the details, they should gradually correct that misunderstanding and the pound may revert to its higher levels of Tuesday.

NZD may be overbought

Similarly, I would expect to see some mean reversion in the opposite direction in NZD. The rally in NZD was caused to a large degree by the fall in AUD, not positive NZD reasons.

Some NZD-based investors may sell the firmer Kiwi now and NZD/USD could fall as a result.

Change in market’s yen view possible

Many people had expected the yen to weaken as US rates rose, but the currency has reversed course recently.

I think that may cause a lot of traders to throw in the towel and for JPY to appreciate further for now.

USD declines on Dovish FOMC

The dollar weakened almost across the board after the minutes of the February FOMC meeting showed the Committee was in no rush to raise rates.

The dollar’s fall was particularly pronounced against the EM currencies; it lost ground against every one we track except for RUB, which fell along with oil prices.

JPY stronger, NZD strongest, GBP weaker

As the main “monetary policy divergence” trade, JPY gained on the FOMC minutes. The best-performing G10 currency however was NZD, which gained despite a fall in milk prices at Tuesday’s auction.

That was probably because a) a larger-than-expected fall in Australian business investment in Q4 caused investors to sell the AUD/NZD cross, and b) with US rates on hold, NZD’s high rates – the highest in the G10 – become relatively more attractive.

GBP was the worst performing currency though after the revisions to Q4 GDP showed that business investment grew more slowly than previously thought.

That’s worrisome as investment is needed to cover the UK’s huge current account deficit.

Oil lower despite API stats: Gold up

Oil was down sharply yesterday as the market anticipated yet another big build in inventories.

It recovered somewhat after the API reported an 884k fall in inventories, but the price failed to retrace all its losses.

Gold was higher as the dollar weakened and expectations of US tightening receded.

Today’s schedule

Chicago Fed national activity index; US initial jobless claims; FHFA house price index; US Dept of Energy crude oil inventories; RBA Gov. Lowe testimony.

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