All aboard the Euro train

All aboard the Euro train

Equity investors for the most part  remained chiefly on the sidelines with no major data releases with few disruptive headlines.But there was animated action on the currency markets when dealers focalized on the Euro. And losing no time, traders rushed to top side expose after Angela Merkel told a Berlin audience that the strong Euro makes German products cheaper, implying euro was too weak due to ECB monetary policy. With investors brooding about US  political developments while shying away from buying USD,  the EURUSD accelerated higher.

Despite the political overhang, the general market temperament suggests that investors are focused on the outcomes of the ECB meeting and what the FOMC has in store for the markets. Currently, markets are pricing in a ~70% probability of a rate hike in June but only 60% for one more rate hike in 2017. If it becomes clear that the FOMC are keen to move on interest rates beyond June, there remains some decent scope for year end Fed repricing which should prop the dollar. In the meantime, I suspect the markets will continue to be hostage to shifting headlines.

Thankfully there’s been a pleasant reprieve for the Comey/Trump headlines, but the melodrama is expected to pick up after Memorial Day ( US) and Spring Bank Holiday ( UK) when Trump returns to Washington after his first official trip abroad.

Euro

The overhang from weak US economic data and the ComeyTrump saga has dealers shunning the greenback which continues to promote demand for the Euro. Merkel’s comments added fuel to this fire in a market that is fully entrenched in buy the dip mode. After touching an intraday high above 1.1260, short term traders took profit as the FOMC  side of the calculus has yet to play out.  With minutes on Wednesday and a plethora of Fed speakers still to come. Regardless, with the market playing the Euro from the long side,  last week’s aggressive breakout suggests a test of 1.1300 is in the offing.As markets  are looking for any excuse to load up on Euro’s.

Japanese Yen

While yesterday’s UsdJpy sell off after another NK missile test is short lived,  Yen traders continue to eye the Korean geopolitical landscape and correctly so. North Korea appears dead set on launching its first intercontinental ballistic as they continue to make technological advancements within their missile regime.  Despite little reason to sell Yen, the market still views selling USDJPY at current levels as low-risk reward trade ahead of the FOMC. Rather they the prefer to move into EURJPY which offers the path of least resistance on short JPY.

Australian Dollar

It’s a huge week for commodity currencies heading into May OPEC meeting Metal and Energy markets continued to trade positively with WTI trading north of 50.00 per barrel as the markets are convinced the nine-month extension will fly through, while reports are even suggesting even deeper cuts.  With the Aussie basing last week after easing in June US rate hike expectation and a bounce in Iron ore,  momentum suggests we push toward the 7500 level. 

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

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and 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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