Risk on

Risk on 

Risk markets continued to flourish overnight as global markets took the lead from Asia, but the USD is trading with a softer bias as we head into today’s ECB meeting.

In what is becoming general news, the S&P made another record high. As the Dow edges ever so closer to the 20,000, it appears more about when, and not if, this psychological barrier can give out.

Foreign Exchanges volumes were unusually small overnight as the ECB jitters took hold. The US 10 year bond yields retreated from last Thursdays 2.492 % and are currently trading sideways around 2.3850-2.3950 to start the week. Predictably, the mighty greenback has lost some of its current mojos.

We have seen a significant move on the USD treasuries since the November election, and with more questions than answers about the future US Administration economic and fiscal policy, the market is taking a breather, awaiting further clarity on US fiscal expansion.

Predictably, as the bond markets trade sideways to start the week, forex traders have a greater propensity to book profits, especially as we near year-end holiday season.

Bull flattening mentality is currently taking shape in US debt markets.

 Australian Dollar

The Australian dollar was supported overnight by improving risk sentiment. After plunging .5 % after yesterday’s dismal GDP print, the Aussie quickly found its legs and has fully retraced yesterday’s GDP induced drop. The RBA unequivocally stated that they are willing to overlook near-term shocks, as Aussie bulls remain staunch, even in the face of recent data miss hits. With “risk on” accelerating across a breadth of asset classes, this could certainly open up another test of the critical .7500-.7525 zone. Despite some doom and gloom outlooks for the Aussie, the AUD continues to be a stalwart currency in the G-10 commodity space.

Japanese Yen

Dips remain shallow, and the pair is holding up well. While the US bond curve flattens, risk sentiment continues surging, underpinning the USDJPY sentiment. It seems everyone has ‘buy the dip’ mentality, so provided there is no ultimate shocker on the 10 year Bond yield collapsing, the USDJPY should remain on solid footing into next week’s USD dollar, directionally key, FOMC meeting.

The Nikkei is showing some moxie in early trade, but so far the Risk correlated G-10 currencies have latched on to record highs in the US equity market. The USDJPY risk correlation may play some catch-up this morning, despite my conviction that year-end pressure and profit taking across a multitude of asset classes will take USDJPY closer to the 111.50-112 levels by year end.

Chinese Yuan

Action has been very tepid and outside of a bump in activity over yesterday’s Australia GDP print and the China reserve data markets have been rather slow.

 

With Yuan short-term funding costs easing, there was a move above 6.90 briefly as traders felt a bit more at ease with a lower negative carry. The move quickly gave way to profit taking and softer USD sentiment across the board as year-end mentality grips trader sentiment on the CNH post.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Senior Currency Trader and Analyst at OANDA
Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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