We saw volatility increase across the financial markets yesterday as positions were adjusted ahead of key risk events in the next couple of days. The majority of the currencies traded hard in familiar ranges but we saw a sea of red for the second day running across the equity indices, with notably the Dow finishing the US session 1.37% down. In the currencies the dollar remains on the back foot and has been a consistent sell on rallies in the current environment, however upcoming events could start to sway that sentiment.
We have a big day ahead in terms of risk events and it kicks off with the Australian Inflation numbers with market expectation sitting at 0.7% for the QoQ release. This is a key piece of data for the market and the RBA and any large deviation from expectation should see some decent moves in the Aussie dollar. Later in the Asian session we have the State of the Union address from President Trump and this has the potential to add extra volatility to the market, we expect it to be fairly upbeat in line with the President’s usual rhetoric, but traders will be looking for any specific mention of the markets or the dollar to initiate moves and given last week’s activity we see the chance of this occurring as good.
Into the London session and the European Flash CPI numbers are due at 9.00 pm (exp 1.3%), then into the New York session we have the ADP Nonfarm Payroll data followed swiftly by the Canadian GDP, Chicago PMI and the US Oil Inventories numbers. The day is nicely finished off with the FOMC rate and statement. It is Janet Yellen’s last meeting as Chair before handing over to Jerome Powell but market expectation is firmly with no change and even though Fed watchers will be looking at the statement closely, we don’t expect any major changes.