Why all the Risk?
European risk steadied overnight after yesterday’s very wobbly Asia session when Greek government spokesman Tzanakopoulos denied the German newspaper Bild report that Greece could forego next bailout payment. But for those of us that worked through the Greek debt saga, this has an all too familiar ring suggesting there’s likely more drama to unfold.
The Merkle -Trump War of Words is catching dealers attention after President Trump called out Germany’s massive trade surplus and questioned their financial contribution to NATO.But this is typical Trump modus operandi and apparently not overly concerned about ruffling a few feathers when it comes to calling out Germany for its unfair trade advantage. And while it is disconcerting for investors to see these two go toe-to-toe., but let’s face it, Trump is only stating what every trade economist and other German ally has known for years but were unable to negotiate more favourable terms of trade.
Add another event risk to the calendar as Former Italian PM Matteo Renzi on Sunday said he was for holding an election at the same time as Germany’s in September. Anti-establishment parties are making the huge inroads in Italy potentially escalating risk for the Euro. The hyper-emotional Italian elections always take a tricky path and will be fraught with uncertainty down to the wire.
The UK election chances will likely see the GBP go through a bad case of Yo-Yo syndrome in the weeks ahead. Trading and speculating sentiment polls is always a dangerous game so fasten your seatbelt, turbulence ahead
Despite the mounting Euro risk, the single currency has not gone out of favour and rebounded convincingly from the 1.11 levels. Driven by the Greece’s Bild retraction along with an active EUR bid after a Reuters headline – RTRS – ECB LIKELY TO DISCUSS REMOVING EASING BIAS AT JUNE MEETING BUT DECISION FAR FROM CERTAIN – SOURCES. , the EURUSD surged to 1.1204 as the market is super sensitive to ECB headlines ahead of June 8 meeting.That said, it’s hard to make a meal out of the headline after ECB President Draghi sounded oh so cautious the day before. But it does highlight just how trigger-happy and ECB headline sensitive dealers are these days.
The ECB headlines overshadowed US data as PCE core printed slightly higher than consensus but provided little more than light tail winds for the Greenbacks sail.
I suspect the Traders will continue to fret about the mounting Eur risk which could temper upside expectations until further clarity into the ECB’S forward guidance at next week’s meeting There remains lots of vulnerabilities in this trade which could make for a rough week ahead.
USDJPY continues to trade in a mild risk-averse state undercut by softer US Treasury yields. The bid in US fixed income emerged when oil prices continued to spill, and US equities turned south
Is it all about oil? Likely not as investors should be resonating with Fed Bullard who pulled few punches yesterday on Bloomberg TV and stated it’s time for Washington to “get off the pot. ““Washington does have to deliver at some point, and I think that is a concern going forward, whether the honeymoon period would end at some point, and maybe the reality of American politics would settle in,” Bullard remarked, before delivering the following rather skeptical assessment: “We’ll see if that happens or not. I think the jury is out on all that.”
A soundless overnight session as the market’s focus was more on shifting Euro and Risk sentiment and the AUD remained rather sidelined trading within defined short term ranges. In tepid trade, the Aussie was the beneficiary of a weaker US dollar driven in part by month-end portfolio rebalancing demand.
The Aussie received a bounce this morning after China May Manufacturing PMI which beat market expectation and is providing a slightly better than expected growth pulse in the region.The print should provide a temporary boost to risk sentiment. However, we should expect the Aussie sold on rallies as the outlook for hard commodities continues to sour, and the PMI print was not robust enough to shift growing forward-looking concerns about Chinas economy
New Zealand Dollar
The Kiwi is trading very confidently after the ANZ business confidence published a 3-month high sending the AUDNZD cross, a current market favourite below the 1.05 level.
The Fixing is back online today, but traders are more focused on the current CNH funding crisis. So far Tom next is trading at 40 pips as the market is hoping for some front end ease from the PBOC. Todays Fixing midpoint is at 6.8633 vs. 8.8698 prior.
Tom Next cranked higher throughout the Asia session opening up at 40 and trading +70. The tight financing conditions have seen USDCNH longs pair back, and decent dollar selling as near term specs are content to pick up the carry.
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