What was expected to be a lull before the storm turned anything but as Forex markets went into a tizzy on some unexpected headlines. All the while risk sensitivity remained fair-minded and stable ahead of the major events., ECB, UK election, and Comey testimony.
Oil prices are back on the slippery slope down with WTI crude slumping 5% to just under USD46/bbl after greased by the EIA s Crude Stocks Change which rose last week, breaking a run of eight consecutive weeks of decline, and predictably oil linked currencies continue to underperform.However, prices have based in early APAC futures trade as level heads start to consider this build will likely reverse next week significantly influenced by the holiday weekend surge in demand.
However, it was the early release of ex-FBI Director James Comey’s testimony that has calmed investor’s nerves and returned a bid to risk sensitive USDJPY.The long and short of ti was the letter offered no smoking gun or impeachment worthy bombshells and only repeated what the market had already known.
Euro
Euro bulls were sent into a panic when reports emerged citing unnamed “officials” suggesting that the European Central Bank would lower the Eurozone inflation forecast to 1.5% from 1.7% for 2017, 2018, and 2019. EURUSD dropped like a stone from 1.1275 to 1.1205. The overreaction was more due to new weaker Long EUR positioning as short-term traders have been building and Euro ahead of the ECB, as the opportunity to catch an ECB turn in policy is just too enticing. The move was short-lived as the market remains in full buy the EURUSD dip and the single currency finished the day where it started
Japanese Yen
USDJPY price action was just a lively a the dealers boarded the Yen roller coaster amidst risk aversion trades and headlines which suggested the BOJ could upgrade its economic assessment by month end.It certainly appeared a test of 109 level was on the card, but the release of ex-FBI director Comey letter to the Senate Select that had investors smiling and a strong bid returned to USDJPY. But we are not out of the weeds just yet as risk sentiment remains fragile
British Pound
Sterling continues to perform well with final opinion polls pointing to a comfortable Conservative win. Price action this week has reflected this consensus as long Sterling continues to be favoured in the election. I suspect it now turns to what size of the majority will the Tories have with anything about 50 seats likely to see GBPUSD test the 1.3200 level.
Australian Dollar
Price action post a surprisingly robust domestic GDP suggests the market was positioning for the miss in GDP after contributing inputs released earlier this week hinted the data might come in on the weaker side. However, volumes have been rather tepid as G10 focuses on EUR and GBP as we head into event risk with the ECB and UK elections tomorrow.
The market was getting comfortable with a bearish Aussie bias, and we’re likely witnessing little more than a clear out of newly minted weaker shorts given the improving domestic data and the fact the RBA statement provided little ammunition to sell the Aussie
