All aboard the Euro train
Equity investors for the most part investors remained chiefly on the sidelines with no major data releases with few disruptive headlines with the S&P nudging higher at the close and all but filled last Wednesday market gap.But there was animated action on the currency markets when dealers focalized on the Euro. And losing no time, traders rushed to top side expose after Angela Merkel told a Berlin audience that the strong Euro makes German products cheaper, implying euro was too weak due to ECB monetary policy and as investors continue to brood about the political developments in the US and thereby shying away from buying the dollar.
Despite the political overhang, the general market temperament suggests that that investors are killing on on the outcomes of the ECB meeting and what the FOMC has in store for the markets. Currently, markets are pricing in a ~70% probability of a rate hike in June but only 60% for one more rate hike in 2017. If it becomes clear that the FOMC are keen to move on interest rates beyond June, there remains some decent scope for year end Fed repricing which should prop the dollar. IN the meantime, I suspect the markets will continue to be hostage to shifting headlines
Thankfully there’s been a pleasant reprieve for the Comey/Trump headlines, but the melodrama is expected to pick up after Memorial Day ( US) and Spring Bank Holiday ( UK) when Trump returns to Washington after his first official trip abroad.
Euro
The overhang from weak US economic data and the ComeyTrump saga has dealers shunning the greenback which continues to promote demand for the Euro. Merkel’s comments added fuel to this fire in a market that is fully entrenched in buy the dip mode. After touching an intraday high above 1.1260, short term traders took profit as the FOMC side of the calculus has yet to play out. With minutes on Wednesday and a plethora of Fed speakers still to come. Regardless, with the market playing the Euro from the long side, last week’s aggressive breakout suggests a test of 1.1300 is in the offing.As markets are looking for any excuse to load up on Euro’s
Japanese Yen
While yesterday’s UsdJpy sell off after another NK missile test is short lived, But Yen traders continue to eye the Korean geopolitical landscape and correctly so. North Korea appears dead set on launching its first intercontinental ballistic as they continue to make technological advancements within their missile regime. But for the time being with US political tension easing, and despite little reason to sell Yen, the market still views selling USDJPY at current levels as low-risk reward trade ahead of the FOMC. Rather they the prefer to move into EURJPY which offers the path of least resistance on short JPY.
Australian Dollar
It’s a huge week for commodity currencies heading into May OPEC meeting Metal and Energy markets continued to trade positively with wTI trading north of 50.00 per barrel as the markets is convinced r the nine-month extension to go through, while reports are even suggesting even deeper cuts. With the Aussie basing last week after easing in June US rate hike probability and a bounce in Iron ore with OPEC looming price action and momentum suggest we push toward the 7500 level. But there is potential for a catchup move on a clear break.
