Fed to Stay the Course, China GDP Next

The main headlines Monday were from Fed members rejecting Bullard's talk of delaying the end of the taper but markets were unfazed. The US dollar was the laggard while the kiwi led the way as stocks drove upbeat risk appetite. The focus now switches to China with Q3 GDP due.  Our ongoing in Premium trades remain AUDUSD, GBPUSD our most recent Premium trades, there are 2 GBPUSD, AUDUSD and NZDJPY. A new set of Premium  trades  shall be issued on Wednesday night.   

Fed members Rosengren and Fisher – on opposite sides of the hawk/dove spectrum – both underscored a willingness to continue tapering heading into the trading week. That could have boosted the dollar and hurt risk assets. IT giant IBM also warned on profits in a blow to hopes for business investment.

Yet stock markets rallied nearly 1% and the US dollar sagged. We struggle to tie these events to news and instead point to strong weekend sentiment and talk about a bottom in stocks. The Treasury market was much more cautious with yields moving 1-2 bps lower.

There were also signs of strain in the periphery with Portuguese 10-year yields up 14bps, partly on talk of liquidation in Espirito Santo assets.

You could argue the market had a chance to get a better handle on the risks and has shifted worry to Europe. But that doesn't explain how the euro was able to climb against the US dollar throughout the day.

Overall, markets will need some better news in order to continue this rebound or it will quickly be over and the US dollar will resume its rally (excluding versus JPY).

The news starts with Chinese Q3 GDP at 0200 GMT. The consensus is for 7.2% y/y growth and anything else would be negative. The question is: Would a miss mean more stimulus? Probably and that could make any dip a worthwhile buy in AUD/USD. Meanwhile, a good number would boost the Aussie on better global growth and continue to help nerves heal.