Financial market research and analysis

Wall Street remained neutral on Tuesday despite blowout earnings from Walmart. Investors were trading cautiously, leaving the Dow struggling for direction ahead of important indicators later in the week and today’s Fed minutes.

Asian markets had more of a spring in their step, advancing to 4 ½ month highs overnight before paring some gains. Trade talk optimism following a reiteration from Trump that trade talks are going very well boosted sentiment. However, traders are unable to shake off the nearing trade truce deadline and the lingering threat of higher trade tariffs.

Whilst these lingering trade deadline concerns dampened the mood for equities across Asia pulling markets off their highs, they didn’t translate into a strong risk off mood. The dollar was moving higher versus the safe haven yen in a sure sign that investors, although a little nervous were still keen to take on some risk. The dollar gained 0.2% versus the yen overnight. European bourses are pointing to a flat start on Wednesday.

Fed Minutes Won’t Help The Dollar

More broadly, the dollar was struggling as investors look ahead to today’s Fed minutes. The minutes from the Federal Reserve January meeting will be scrutinised closely. Traders will be keen to gain a deeper understanding of the Fed’s abrupt change in direction of policy and motives for pressing pause on the hiking button.

The Fed minutes are unlikely to offer any support to the dollar. When the Fed met in January, they made it very clear that they will not be raising rates anytime soon. A sharp contrast to the rate hike in December.

Yesterday we saw the dollar under pressure as investors started pricing in more dovish minutes and trade talk optimism. The euro moved to a two-week high versus the greenback, whilst the pound rallied to a peak of $1.3077; a level not seen since earlier in the month.

Baffling Pound Strength

The pound surged following data that showed that the UK labour market was holding up well as Brexit approaches. The rally was also underpinned by hopes that Prime Minister Theresa May will make progress as she heads back to Brussels today for further talks with European Commission President Jean-Claude Juncker. The optimism from pound traders is impressive given that the EU have continued to say that they will not accept a time limit on the Irish backstop arrangement and refuse to make any changes to the already agreed deal. Whilst the pound surged through several moving averages on Tuesday, it could quickly slide back below $1.30 should Theresa May return from Brussels empty handed once again.

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