Major Headlines

  • DXY pulls back from yesterday, eyes test of trend support at 105.40
  • Yields take a breather, pushing lower by 15bps from recent cycle highs, giving risk a lift
  • Equities start the session in the green, with VIX back below its 200DMA and yields rolling over

Market Overview

The stretched Dollar has finally seen some downside momentum today, as overall risk sentiment improves and yields push lower. With positioning still stretched, and possible month-end and quarter-end USD buying out of the way, attention will be on today’s US Core PCE for further direction.
Yields have finally put in a decent pullback (albeit just 15bps) from their recent cycle highs. Catalysts for the move have been thin, but after a series of cycle highs printed in the past few sessions, some pullback of the recent move was to be expected at some stage. Eyes are now on today’s US PCE data.
Equities have finally breathed a sigh of short-term relief as the VIX broke back below its 200DMA and as 10-year treasury yields finally saw a bit of a pullback. Seasonality shifts more positive for equities going into the last quarter of the year, so unless Core PCE surprises massively higher, risk could remain constructive.
Other markets such as commodities have also mostly liked the lower USD and better risk sentiment. Copper and Silver have both put in a decent bounce, however WTI has struggled to keep up (but after an almost 40% gain in the last 3 months some pullback shouldn’t surprise here).

FX Markets

The NZD is leading the major currencies to the upside today, as risk sentiment trades positive and commodities are mostly higher. The USD is the weakest of the majors as US yields pull back from their recent cycle high and month-end and quarter-end USD buying dries up.

Economic Calendar

The main highlight for today will be the US Core PCE data (the Fed’s preferred measure of inflation).

Trade Ideas

Even though we’ve seen some pullback in yields and the USD, both of them are still close to their recent highs, and still means that the risk to reward of chasing them higher at these levels are not attractive, even if the data comes in better-than-expected.
The other asset to watch is gold as a big miss in the data could give gold a decent nudge higher if both the USD and yields pull back a bit. Just take note momentum on gold is firmly to the downside so adjusting risk accordingly is important.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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