Beware of Quadruple Witching
December 19, 2014
Asian bourses followed its Wall Street counterparts and posted its best day in 15 months on Friday with relief that the Federal Reserve will not rush to withdraw its accommodative policy and Japan’s commitment to maintain stimulus to shore up its economy and provided an upbeat assessment of the economy as the Bank of Japan cited improvement in exports, housing and production. In his press conference, Governor Kuroda downplayed the impact of oil prices on inflation in Japan and believes it to be transitory. What will be key will be its next meeting on January 21 -22 where Kuroda and company will be providing updated inflation forecasts from October.
The euro is weak and could test its multi-year low of 1.2247 as Reuters headlines suggest that the ECB is contemplating having peripheral nations such as Greece or Portugal set aside contingency funds to shield itself from any losses resulting from quantitative easing next year. The ECB also announced that banks would repay €7.1 billion in LTROs, which is lower than the previous two weeks. Divergent central bank policy between the Federal Reserve and the ECB will cause the euro to maintain a depreciating trend into the first half of 2015.
The lack of economic releases has the pound relying on broader market themes for direction. The focus for traders will be next week’s final GDP print and current account. The pair of GBP/USD has been contained within its six week trading range of 1.5541 to 1.5826.
As we head into the North American session, the Canadian dollar declined following the release of weaker than expected inflation data which slipped to 2.0% on an annualized basis in November from 2.4% the previous month. The softer print could place pressure on the Bank of Canada to strike a more dovish tone in its next meeting as the 2.0% target set by the central bank may not be maintained with the recent collapse of oil prices. In other data, retail sales for October came in line with forecast at 0.2%. Although there is no significant data on the docket for the US today with the exception of two Fed speakers – Evans and Lacker – and the release of Kansas City Fed Manufacturing Activity, forecasted to come in at 7.0, it is quadruple witching day and the squaring of positions could provide more volatility to markets. US equity markets are pointing to a positive open and will look to add to further gains following Thursday’s largest one-day gain since 2011 for the Dow.
Looking ahead to next week, liquidity will be thin due to the Christmas break, but US economic releases will include the PCE deflator and third quarter GDP which is anticipated to be revised upward to 4.3%.
December 19, 2014
Asian bourses followed its Wall Street counterparts and posted its best day in 15 months on Friday with relief that the Federal Reserve will not rush to withdraw its accommodative policy and Japan’s commitment to maintain stimulus to shore up its economy and provided an upbeat assessment of the economy as the Bank of Japan cited improvement in exports, housing and production. In his press conference, Governor Kuroda downplayed the impact of oil prices on inflation in Japan and believes it to be transitory. What will be key will be its next meeting on January 21 -22 where Kuroda and company will be providing updated inflation forecasts from October.
The euro is weak and could test its multi-year low of 1.2247 as Reuters headlines suggest that the ECB is contemplating having peripheral nations such as Greece or Portugal set aside contingency funds to shield itself from any losses resulting from quantitative easing next year. The ECB also announced that banks would repay €7.1 billion in LTROs, which is lower than the previous two weeks. Divergent central bank policy between the Federal Reserve and the ECB will cause the euro to maintain a depreciating trend into the first half of 2015.
The lack of economic releases has the pound relying on broader market themes for direction. The focus for traders will be next week’s final GDP print and current account. The pair of GBP/USD has been contained within its six week trading range of 1.5541 to 1.5826.
As we head into the North American session, the Canadian dollar declined following the release of weaker than expected inflation data which slipped to 2.0% on an annualized basis in November from 2.4% the previous month. The softer print could place pressure on the Bank of Canada to strike a more dovish tone in its next meeting as the 2.0% target set by the central bank may not be maintained with the recent collapse of oil prices. In other data, retail sales for October came in line with forecast at 0.2%. Although there is no significant data on the docket for the US today with the exception of two Fed speakers – Evans and Lacker – and the release of Kansas City Fed Manufacturing Activity, forecasted to come in at 7.0, it is quadruple witching day and the squaring of positions could provide more volatility to markets. US equity markets are pointing to a positive open and will look to add to further gains following Thursday’s largest one-day gain since 2011 for the Dow.
Looking ahead to next week, liquidity will be thin due to the Christmas break, but US economic releases will include the PCE deflator and third quarter GDP which is anticipated to be revised upward to 4.3%.
Gregory D. Alexandr