Yen Up as Risk Appetite Sours But Market Mood Swings May Mislead

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TALKING POINTS – YEN, STOCKS, FRANC, US DOLLAR, EURO, GERMAN CPI

  • Japanese Yen, Swiss Franc higher as risk appetite sours once again
  • US Dollar broadly pressured as 2019 Fed rate hike bets evaporate
  • Euro may edge lower as CPI drop puts dovish ECB in the spotlight

Seesawing sentiment trends continued to define G10 FX price action in Asia Pacific trading hours. A late-day downturn in risk appetite sent Japan’s benchmark Nikkei 225 stock index lower, boosting the perennially anti-risk Yen. The similarly-minded Swiss Franc also traded higher.

The US Dollar was the weakest on the session in what appears to reflect deteriorating Fed interest rate hike expectations. The priced-in tightening path for 2019 reflected in Fed Funds futures now implies a mere 12 percent chance of any increase even as the central bank itself calls for a 50bps upshift.

MARKET MOOD SWINGS MAY MISLEAD, EURO AT RISK ON GERMAN CPI

Bellwether S&P 500 futures are sending mixed signals about what to expect ahead. Earlier gains have been erased and now the pendulum seems to have swung in favor of risk aversion. Thinning liquidity ahead of the New Year holiday weekend warns against taking any such cues at face value however.

Still, the balance of risks menacing investors probably means the path of least resistance leads to the risk-off side of the sentiment spectrum. A partial US government shutdown persists, the outlook for global growth has darkened, the ceasefire in the US-China trade war looks fragile and Brexit is mired in uncertainty.

German CPI data headlines the European data docket. The headline on-year inflation rate is expected to drop to 1.9 percent, the lowest in eight months. That may see the Euro retrace some of its recent strength as traders are reminded that the ECB is unlikely to be raising interest rates any time soon.

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ASIA PACIFIC TRADING SESSION

Yen Up as Risk Appetite Sours But Market Mood Swings May Mislead

EUROPEAN TRADING SESSION

Yen Up as Risk Appetite Sours But Market Mood Swings May Mislead

** All times listed in GMT. See the full economic calendar here.

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