Major Headlines:

  • Treasury Yields Dip After FOMC Announcement:
    Treasury yields continue to slide lower following yesterday’s quarterly refunding announcement and the Federal Open Market Committee (FOMC) decision, creating a favorable environment for bond investors.
  • Positive Sentiment Boosts Equities:
    Equities and other risk assets surge as market sentiment turns positive in response to the FOMC’s language leaning towards the dovish side, providing investors with reasons to buy bonds and rally risk assets.
  • DXY Nears Key Support:
    The US Dollar Index (DXY) approaches a crucial support level at 106 after the FOMC’s reaction, impacting major currency pairs like AUDUSD.

Bond Market Recap:

Yesterday proved to be a favorable day for bonds. The Treasury’s quarterly refunding announcement initially generated demand for bonds. However, it was the FOMC decision that provided another strong incentive for bond purchases, as the Fed Chair’s language was perceived as more dovish.
The FOMC press conference offered something for both the doves and the hawks, but market price action clearly showed a strong risk sentiment. Investors interpreted the overall language and tone as leaning towards the dovish side, resulting in rallies for both risk assets and bonds.
As a result, S&P CFDs have approached key resistance levels around 4260, and DAX CFDs successfully traded back above the psychologically significant level of 15000. As long as volatility and yields remain subdued, there appears to be room for further upside in the equity markets. Monitoring incoming data will be essential to gauge market direction.

FX Market Insights:

In the foreign exchange (FX) market, the New Zealand Dollar (NZD) is the standout performer among major currencies, driven by a robust risk-on sentiment.
Conversely, the US Dollar (USD) is leading major currencies lower after the FOMC policy decision last night.

Upcoming Highlights:

Today’s key events to watch are the Bank of England (BoE) announcement and the US Claims data.

Bank of England (BoE):

Market expectations already anticipate a dovish hold from the BoE, characterized by an 8-1 vote split. If the BoE delivers as expected, tradable opportunities in Sterling may be limited. For a dovish trigger, watch for indications that interest rate cuts are being considered in the near term. Conversely, a hawkish trigger could involve the BoE leaving their language unchanged while upgrading their medium-term inflation projections, suggesting a case for more rate hikes.

Risk Sentiment:

Risk appetite is largely positive, with equities, commodities, and high-beta currencies showing strength. However, safe havens present a mixed picture, with mixed movements in safe haven currencies. Bond prices are higher, and equity volatility is lower.
Keep in mind that risk sentiment can change quickly, so staying updated throughout the trading session is crucial.
The primary driver for risk sentiment this week will be geopolitical developments and US economic data. Stay informed to navigate these dynamic markets effectively.

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.

All trading carries risk.