FXStreet (Delhi) – Kit Juckes, Research Analyst at Societe Generale, questions that whether commodity prices are in overshoot and set to stabilise, or still set for another significant leg lower as global growth slows which would drive the dollar up more than anything the FOMC might deliver.

Key Quotes

“The FX market’s focus has moved back to G4 (US, Euro, Japan and China) central bank
policy divergence. The Fed is teasing us with the possibility of a December rate hike. The
ECB is suggesting rather more forcefully that more easing (more QE, perhaps a deposit
rate cut as well) could be forthcoming. At least the PBoC has cut rates.”

“How the dollar trades against the yen and the Euro may depend on the minutiae of policy divergence between the ECB, BOJ and Fed, but for the wider FX market, the bigger questions is where the commodity super-cycle is headed.”

“While we wait and see whether China’s economy and policy-makers can avoid triggering another downturn in commodity prices and another significant period of dollar strength, we go on being seduced into over-reacting to every single hint and nudge from the Fed, ECB and
BOJ.”

“If the Fed hikes in December and the ECB delivers a further cut in the deposit rate, I reckon EUR/USD will re-test the March lows before Christmas. If the Fed delays again and the ECB goes on talking while delivering little (a bit more QE but no rate cut), then EUR/USD could easily meander back towards 1.16. ECB action is likelier than Fed action, and I suppose that keeps EUR/USD in the bottom half of its range. In the meantime, EUR/USD will go on loosely tracking the Bund/Treasury spread.”