We are less than 48 hours away from Judgement Day, and the forex markets are gravitating to some semblance of risk event midpoint. Other than kicking the can from poll to poll, there is little on offer for traders to sink their teeth into. Even Fed chairman Janet Yellen’s first day of the semi-annual Humphrey-Hawkins testimony, which usually commands some spotlight, failed to get a rise. But there was no smoking gun on day one.
The Aussie – getting a kick out of risk sentiment
The Australian dollar continues to outperform on the back of upbeat risk sentiment as we get closer to the referendum outcome. As expected, domestic concerns were mostly ignored and even the non-biased RBA minutes were unable to inspire any significant price reaction. But the consensus remains that the RBA is not eager to accommodate further until we see Q2CPI . So from my seat, it is back to poll-watching in the interim. Current conditions are all about risk sentiment for the commodity currencies, but smart money remains neutral awaiting the Brexit dust to settle.
The oil market remains static, and values are being dictated by USD movement. However, the 5.2m barrel draw-down on the API survey should keep prices supported.
The Yen – poll-watching and tight ranges
USDJPY, for the most part, is unchanged and remains headline driven, either from Brexit polling or policymaker headlines. The overall sentiment remains at the mercy of positioning and the EU referendum polls while trader positioning continues to be very neutral. Dips below 104 remain shallow, while helpless shorts continue to trim, keeping the market in tight ranges. As expected, there are few if any aggressive sellers of USD vs. the JPY, especially considering whatever you sell now you only have 24 hours to buy back. Expect USDJPY to hold fairly tight ranges ahead of the big event.
The Sterling-Yen needle, the main gauge of Brexit sentiment, appears to have found a happy midpoint around the 153.50 level after plumbing the 145 level last week. The cross will be the key indicator for the market’s sentiment.
Yuan – game-changing plan from the PBOC
A People’s Bank of China meeting recently discussed the prospects of mainland commercial banks trading in offshore forex markets. While the rules are a bit opaque, and while no timeline was given for the implementation, we should expect a convergence in on the CNY vs. CNH spot rates over time. This shift in policy is a massive step for opening up mainland markets and will provide investors and MNCs with greater transparency surrounding China’s foreign exchange policies. USD China remains quiet in early trading.
A Mixed session for $/Asia overnight, with most pairs profoundly influenced by shifting risk sentiment.