Trump and Trepidation
The high level of trepidation continues to weigh on market sentiments as congressional hearing of White house advisors all but guarantees some headline risk and a possible escalation of the Russia- Gate bluster. Risk sentiment is indecisive due to the political commotion in Washington but with so much USD risk to roll out including FOMC, Key Macro data( Q2 USD GDP) amidst a busy week for US corporate earning, Investors have been reluctant participants so far this week showing a minimal appetite for markets in general.
FX markets are glued to the events at hand and keenly focused on the Greenback which has bounced off last weeks lows bolstered by modest profit taking. But the market remains extremely dollar bearish due to the never-ending Trump risk and the recent run of weak to average US economic data.But given investors are showing little moxy to push the market in one direction or the other, they’re likely adopting a prudent wait and see strategy until we get through this week’s key event risks.
While there’s been little discussion about this week’s FOMC so far and If I don my rose-colored glasses, it could prove USD supportive more so if the Feds give clear signal towards balance sheet reduction in September. Also, while the Feds have telegraphed their inflationary view at every opportunity, any comments re affirming inflationary pressures are building will be deemed supportive for the Greenback.
EURO
Despite a wave of profit taking overnight , momentum still suggests a push higher, but after struggling to navigate the 1.1675-80 speed bump and the July Markit composite PMI coming in a bit below market expectations, traders booked profits. But price action in Asia could be telling as the dip in the Euro remains well supported so far suggesting traders are reloading long Euro ahead of the FOMC.
Australian Dollar
The lack of follow through on Debelle’s dovish remarks has added to more frustration for the Aussie bears as the broader USD weaker narrative remains the primary focus. But after last weeks post -RBA minutes frenzy, there’s been minimal action, But for the bears the favour the Aussie lower against the possible .8000 backdrop, I suspect they will remain dormant going into CPI and Low on Wednesday CPI and Lowe
Japanese Yen
The USDJPY correlation with ten-year yields remains tight so expect the pair to remain guided by broader risk moves. But with the perpetual Trump headline risks and with Fed policy coming under increased scrutiny, a delay in announcing balance sheet reduction and or suggestions that inflation has disappointed for more than transitory reasons.The greenback will fall off the cliff.
