Equity markets were quiet overnight as another political storm in D.C puts stock markets under a cloud as the fallout advances on allegations that President Trump disclosed highly classified information to the Russian Foreign Minister Lavrov about a planned IS operation. Investors are deeply concerned that all the political noise will morph into economic risk as the political back-fence talk, speculation and dirty laundry could detract from Trump’s key agenda, Tax reform
In commodity markets, the energy complex is lower after the US API reports a build of 882,000 barrels in US inventories while Chinese iron ore futures exploded higher 3.75 % overnight and base metal are trading on firmer ground this morning.
Euro
But the real noise was generated in the Forex markets overnight where the EUR ripped higher exploding through some significant levels at 1.1000 and then again 1.1075 as the path for the EURO to trade higher appears considerably clearer and looks poised to fill the total pre-US election gap to 1.1145.So all good things do come to those who wait.
The market has been patiently waiting for this Euro move since the French election, and while equity inflows have been stellar since the election, the catalyst for the move is a further decrease in EU political uncertainty after the positive German election result over the weekend and the weak US data on Friday
Also, it’s hard not to take notice the divergence in economic data between EU and US which has the market now banking on convergence in interest rates between the ECB and FED
Japanese Yen
Not to be outdone, the USDJPY had come under immense pressure in early APAC trade as the dollar sags, equity markets sour and investors are getting roiled up by the waves political fallout in DC.
The USDJPY has fallen in an aggressive move taking out the 113 handle and slicing through 100d MA at 112.94.without a pause. While there is no particular headline behind the move, a likely combination of slipping US yields, softer oil prices and heightened political uncertainty in Washington are providing traders with this morning’s toxic dollar elixir. While the market is fishing for a base this morning, momentum does suggest there is the potential for a deeper USD selloff.
With the lack of Tier 1 US economic data to support the dollar this week and with Frida’s weak CPI and Retail Sales points fresh in traders minds, the dollar is all but defenceless against this current sell-off.
Caution should be exercised reading into US data amidst heavy USD selling. There is a greater propensity for the dealers to be more focused on the softer rather than supportive US dollar data. Case in point, last night traders looked through the stronger than expected US industrial production number while focusing on the weak housing starts data.
Australian Dollar
The weaker USD and a basing on hard commodity prices are providing the Aussie with a boost this morning, but so far the rallies continue to run into a steady supply of offers, and there has been little in the way of spontaneous short Aussie dollar unwind. It appears the market’s preference remains to play AUDUSD from the short side while perhaps viewing a potential economic slowdown in China as a serious drag on the Australian economy and forward-looking commodity prices in general.
Chinese Yuan
Yesterday fixing which came out much lower than markets expectations left dealers scratching their heads. Volumes soared on the confusion as dealers were trying to read into the policy guidance. But despite the lower fix, there was robust dollar demand and markets were mutually offset. On, the fix itself, some attributed the move as related to "One Belt, One Road" summit and the Pboc attempt to strengthen the Yuan to attract investor flow, but more likely it was little more than a reflection of the latest USD unwind.
After slumbering through CNH trade the past few weeks, the markets will take notice of upcoming fixes to see if there were any policy implications behind yesterday’s move
