Hang Seng Index
After a positive start during the morning trading session, the index was showing a few signs of wobbling at the afternoon open on the heavily subscribed HSI. Don’t mistake a short covering rally for a reverse in negative sentiment as this market is far from bullish on Asia risk. Despite positive developments on the US-China trade front, the playbook remains unchanged, and it would be a total surprise for many market participants if the Trump administration didn’t follow through with 200 billion in tariffs.
Currency Markets
Much of today’ price action, outside of the Australian Dollar, could be a function of paring risk ahead of the hugely busy day with BOE, ECB, German, French and US CPIs to navigate. But everyone across the currency world is also watching to see just how definitive a signal the Turkish Central Bank will deliver to quell emerging markets bloodletting.
Australian Dollar
Positions are much cleaner now after the short squeeze on the back of last night CNH move, and today stable domestic jobs report. While there is interest to sell between .7190-7200 levels, in the absence of greater participation, we could set into a consolidation pattern ahead of the critical US CPI data. However, .7200 AUDUSD a desirable standard for Aussie bear and ultimately they will re-engage as longer-term interest rate differentials will continue to weigh on AUD and eventually led to a convincing break of .7100 level
The Euro
Participation was meagre again in Asia, but if Draghi sounds all the right dovish tones ahead of the politically contentious Italian budgets, and with the Feds on Dot Plot autopilot given the run of robust US economic data, the Euro bears could be rewarded. Its way too quiet and something has to give on the Euro post.
The Chinese Yuan
CNY fixing at 6.8488, slightly lower than market expectation.
Traders were buying the overnight dip as there remains a high-level uncertainty that any progress will come from these possible trade negotiations. The market was pricing in the US midterm election as a likely timeline for development on the US-China trade front, so the overnight move does look like the unwinding of long USD hedges may have exacerbated it and compounded by stop loss triggers. Fundamentally, the CNH remains, and we could see some topside follow through on a stronger than expected CPI print later this evening.
Canadian Dollar
The market is not making to much of a meal of this headline.
There was some news on the NAFTA front that Minister Freeland want to be attending Thursday trade discussion but reinforce the notion that the intent is to work towards a deal there was no ‘stalemate’. It’s not even registering on my pessimistic ire monitor that would sound alarms if this was a case of where their smoke there’s fire. But until there is a breakthrough in these negotiations the Canadian dollar ” permabears” will put up a good defence around 1.3000. And trust me after cutting my chops trading the CAD on Bay Street back in the day, most CAD traders are Fairweather players at best!!
Oil markets
Despite the favourable convergence of bullish near-term signals, Iran sanctions and sinking US crude inventories, which should keep oil prices supported for the remainder of the week. Oil markets continue to trade rather poorly in Asia.
Asia risk continues to wane as traders remain acutely focused on possible trade fall out, which could weigh negatively on regional crude demand. Brent and WTI have slipped throughout today’s Asia trading session despite the US offering an olive branch by formally inviting China to resume trade discussion.
Southeast Asia risk is an entirely different kettle of fish and one look at the weakening currency profile of one of South East Asia major crude importers, India, does suggest the weaker Rupee could dent Oil demand as real fuel cost factored directly through the seriously weaker currency supply loop chain.
