• S&P 500 up 1.4%
  • WTI crude down $2.81 to $71.00
  • US 10-year yields down 3 bps to 4.01%
  • Gold down $17 to $2028
  • JPY leads, USD lags

The mood was mostly sour coming into the day after another poor trading day in China but it was generally quiet and with little on the US economic calendar, there wasn't going to be much to trade off.

However it was oil that kicked things off after Saudi Arabia announced a price cut on its grades. That led to a 5% rout in oil that made the market feel better about inflation, leading to a fall in Treasury yields and the US dollar.

Compounding that was a release from the NY Fed on inflation expectations. That survey showed a big drop in expected inflation over 1, 3 and 5 years and that's something the Fed should take comfort in. The dollar bears certainly liked it as that led to more selling, including a dip in USD/JPY down to the ISM lows, which ultimately held.

Cable also tried Friday's highs at 1.2770 but couldn't get through, though it remains close.

USD/CAD might have been the biggest surprise given the fall in oil. The pair rose to 1.3400 early but steadily tracked lower. Oil company stocks were also suspiciously strong with some traders pointing to ongoing resilience in the oil crude curve. As risk appetite improved, USD/CAD fell to 1.3349.

One thing that didn't benefit much as the market turned was gold. It tried to get above $2030 but couldn't hold and ultimately finished only $10 off the lows. For a metal with strong seasonals in January, you would have liked to see more strength as Treasury yields turned lower.

The euro rode the wave of US dollar weakness early and hit 1.0980 before tracking back to 1.0950, up just a handful of pips on the day.

Looking ahead, eyes will remain on bonds with auctions on the scale Tues, Wed and Thurs.

FX news wrap Jan 8