Back to the Grind

Back to the Grind 
Now that the French election risk is little more than an afterthought; the market is quickly pivoting to the Federal Reserve Board’s expectations while focusing on this week’s key economic data releases. Friday’s retail sales and CPI data will be very critical. While we think the Fed will be resolute on its course towards at least two rate hikes, the market is underpricing the risk that the US Fed will tighten rates more quickly than expected, so a robust Retail Sales print and a stronger-than-expected CPI print will be a call to action for dollar bulls.
Overnight, the equity markets were quiet, with stock traders desperately seeking volatility as “Vol’s” fell off the cliff, as the event risk lapsed. The main topic was Friday’s strong payroll headline, which, after a weekend of reflection, has traders questioning their cynical view on the state of the US economy.
One final thought on the French election: despite yesterday’s unassuming market reaction to the runaway victory by Emmanuel Macron, the well-behaviour of the markets suggests that despite a major pop to the upside, the result cannot be viewed in any other light than positive for market sentiment.
Australian Dollar
It’s been a rough start for metals this week, with continued fragility in iron ore and copper likely translating into AUD weakness. The commodities lower narrative still looks to have more to run, which will keep the Aussie on the defensive. Also, we’ve yet to see a relevant retracement during this recent downtrend, suggesting that dealers still favour the AUDUSD to trade lower.
Euro
The market-positive election outcome should be a boost to both euro and risk appetite, but short term market noise and position (i.e. the crowded EUR and EURJPY trade) is dictating near-term price action. And with the close below 1.0930 in New York, it certainly points to a bearish outside day. Despite the profit-taking and stops getting a trigger on the move below 1.0950, there was a lack of new catalysts to buy euro once the election narrative had played out. Dealers are now in a state of flux awaiting some central bank direction, whether it be Fed or ECB.

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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