A Trainwreck waiting to happen

A Trainwreck waiting to happen

The sheer volumes of political noise, Trump uncertainty, and central bank musings has ground down investor sentiment in this battle-worn week for the currency markets. Despite all the noise overnight, the overall impact has been relatively mute, in spite of surging volumes with the ECB fall out, which generated the lion’s share of the day trader volume. On the broader spectrum, longer term players were reluctant to aggressively test the water as restraint upstaged bravado in this extremely muddled landscape.

Political Front

NAFTA remains an extremely touchy topic and despite Trump’s about face, I suspect we have not heard the last word on this subject. The Canadian dollar underperformed the rest of the commodity currency bloc due to lingering trade concerns and another slide in WTI.

USD/CAD Canadian Dollar Lower Despite Trump Giving Nafta a Shot

 

The Stop Gap bill appears stuck in the mud as the Republicans, despite controlling the majority in both house and senate, are again and again relying on the Democrat vote as the Conservative hardliners are in constant opposition to even the most common sense spending proposal.

As for Obamacare, well that only adds to the confusion as it remains uncertain whether Speaker Paul Ryan will bring a revised health care reform bill to Congress for a vote today.

Central Banks

ECB: Draghi focused on the unchanged inflation landscape; short-term interest rates buckled and the EURO slid to an overnight low of 1.0855.

BOJ: At some point, the BOJ is expected to slow the pace of JGB purchases, but with inflation remaining stubbornly below 2%, we are still a bit off from that time. While currency concerns are not within the BoJ overall purview, but the Yen’s near to medium term tangent will likely be determined by interest rate differentials. The BoJ will be doggedly cautious to avoid any language that could be confused as an adjustment in monetary easing.

Australian Dollar

The plethora of headlines generated by the Trump administration has produced very choppy trading in the Commonwealth currencies. Commodity currencies were again dragged through the mud as the AUD hit a four-month low, trading in sympathy with the Canadian Dollar as the US protectionist viewpoint continues to rear its ugly head. Whether it’s softwood lumber, aluminum or take your pick, it looks like downside momentum could carry on, as the fears of US protectionism are not leaving the airwaves anytime soon.

Japanese Yen

Expect a headline driven trade to dominate, as both the Healthcare train wreck and Stop Gap debacle fill the airwaves. Look for short-term gaps and quick nature liquidation to continue, but as trader headline fatigue set in, level heads may opt for the sidelines.

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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