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Last week, a notable theme in the markets was a divergence in messaging from the Federal Reserve (Fed), Bank of England (BoE), and European Central Bank (ECB). The Fed adopted a somewhat dovish tone and did not resist market expectations for significant rate cuts in 2024. In contrast, both the BoE and ECB signaled their intent to maintain current interest rates for an extended period. Despite these contrasting stances, futures contracts softened across the board. Market expectations are currently pricing in rate cuts of approximately 150 basis points (bps) in the US and Eurozone, and 115 bps in the UK for the coming year.In addition to central bank communications, a series of tier one data releases influenced investor sentiment throughout the week. Notably, US Consumer Price Index (CPI) inflation eased further in November. In the UK, there was a slowdown in average earnings growth, and GDP contracted in November. Flash Purchasing Managers’ Index (PMI) data for December revealed increased activity in the UK and US but contraction in the Eurozone.The holiday week starts quietly, with only the German Ifo report being notable. ECB’s Schnabel and Lane will discuss fiscal policy and EMU governance. BoE’s Broadbent will speak at the London Business School.The only economic data scheduled for release in the US today is the NAHB Housing Market Index for December. Fed’s Goolsbee (2025 voter) is set to make an appearance on CNBC, despite already conducting interviews over the weekend. In those interviews, he mentioned that while inflation has shown improvement and unemployment remains low, it is premature to claim victory. He also stated that the Fed’s rate decisions will be influenced by incoming data and that the focus may need to shift back to the employment aspect of its mandate.
FX Positioning & Sentiment USD/JPY options are on high alert for potential BoJ action on Tuesday, Dec 19. FX dealers are not ruling out policy action, as the overnight option expiry now includes the policy decision. Overnight implied volatility is now at 35.0, the highest level since July 28 for BoJ. Implied volatility gauges actual volatility risk when determining premium, and the 35.0 implied vol has a premium/break-even of 208-JPY pips in either direction.
CFTC DataNet speculative positions in the futures market for various currencies as of Tuesday are as follows:- Long positions for the US dollar decreased to 147,327 contracts from 152,360 the previous week- Short positions for the Japanese yen decreased to 81,131 from 104,956- Short positions for the Australian dollar decreased to 52,340 from 57,681- Long positions for the British pound increased to 21,581 from 11,665- Short positions for the Swiss franc decreased to 14,474 from 17,852
FX Options Expiries For 10am New York Cut (1BLN+ represent larger expiries, more magnetic when trading within daily ATR)
Overnight Newswire Updates of Note
(Sourced from Bloomberg, Reuters and other reliable financial news outlets)
Technical & Trade ViewsSP500 Bias: Bullish Above Bearish Below 4675
EURUSD Bias: Bullish Above Bearish Below 1.09
GBPUSD Bias: Bullish Above Bearish Below 1.2690
USDJPY Bias: Bullish Above Bearish Below 143
AUDUSD Bias: Bullish Above Bearish Below .6660
BTCUSD Bias: Bullish Above Bearish below 42500