A choppy month of price action in currencies for February 2019. The EURUSD crossed its 5 month range from 1.15 to 1.13 and back into the middle of 1.14. The Aussie dollar was stuck between 72 and 71 cents for the month, the Kiwi between 69 and 67 cents and the Loonie between 1.30 and 1.33. Whilst the Yen trended, it was a grind lower from the mid 108’s to 111. However, the Sterling, having dipped earlier in the month down to 1.28 managed to rally above 1.33 as traders bet a favourable outcome of Brexit by end of March. This was the largest mover in currencies by far. Otherwise the FX market was very dull indeed.
There were some minor flashes of volatility. In the Aussie we saw strong employment figures only to have Westpac (the best predictor of RBA interest rate settings for last few years) to change their outlook to negative. This is their first change in 3 years. On the same day there was a report that China is limiting the purchase of Australian coking coal which sent the market into a tailspin. However, not enough to break it out of the tight range it is in for last 3 months.
The Kiwi also saw some flash moves too. Firstly, a poor jobs number followed a week later with the central bank being less dovish then expected. However, like the Aussie, it too struggled to break out of recent range.
Over in commodities, gold peaked this month, and seasonally that is the end of the run for it. From now until August gold price more often than not is weaker to sideways at best. Gold does very well from September to February, with most of the run coming in December. But for now, buying gold in March to August, historically does you no favours. Oil on the other hand has done well. Trump did his best to slam it with his attacks on OPEC but the price has bounded higher and broken through recent resistance at $55. Also looking at its seasonality, oil does well in Feb, pauses somewhat in March but then runs higher from April to October which is the end of the Mexican Gulf cyclone season. So, we might see some consolidation above the $55 level before running back into the high $60’s or low $70’s.
In stocks, a stellar run from the bear market level reached in mid-December. The bulls carried the momentum through February as trade war rhetoric took a back seat. The S&P however is failing to get through 2800, a key level. This is the fourth time it has failed at this price in the last 5 months. This run is on the back of Central Bank balance sheets, with the PBOC flooding the market with cash and the US Fed halting any further rate rises. Corporate earnings in the US have disappointed so far this year (apart from Facebook). So the current rally has little depth to its buying. If it can break and hold above 2800, the psychology of the market will change and we will see new all-time highs this year. If it cannot get through that ceiling, then the market is looking terribly like 1937.
March will bring us the FOMC on the 21st. This will be key to see what their forward guidance is on rates this year. It is looking more and more likely that they will move away from the guidance of 2 rate hikes this year to none. The market is actually pricing in 70 basis point cut by December, which is just under 2 cuts. Other central bank meetings (RBA 5th, RBC 7th, ECB 7th, BOJ 15th, BOE 21st and RBNZ 27th) are all expected to have no change. And that I think is the theme for the year, interest rates having no moves. Which means more choppy FX prices.