Opportunistic price action

Opportunistic price action

Hawkish central bank rhetoric, the largest first-half slide in oil since 1997 and global political risk have imparted a level of uneasiness in currency markets. The squally trading conditions across most asset classes have traders looking every which way for select opportunities as both risk and uncertainty abound.

There has been little follow through on the USD revival that started the week as in   the absence of any actionable US economic data  the dollar bulls  are erring on the side of caution

But with the with the GOP struggling to push through economic agenda, it’s difficult to envision an extended US dollar rally until the US administration gets their ducks in a row.

As for the rest of the street, traders are looking for short term selective opportunities as opposed to perusing any trend in this turbulent market.This environment supports  chasing opportunistic price action, and dealers found a sweet spot in both Oils and the Pound  

WTI

Oil prices spiked after the EIA weekly crude stock data showed a decline in US inventories. But  Bears prowling the oil patch cut that rally short in a heartbeat as WTI plunged to 42.05 before pulling back into the close of NY futures trading.The Oil Bears are steering this tanker as the weekly inventory decline failed to put a dent in the overwhelmingly bearish market sentiment. The currency market spillover saw the Canadian dollar, which correlates to the movements of oil prices, trade lower  while equity markets continue  trading with a softer bias weighed down by energy sector stocks

The Pound

BoE’s Chief Economist Haldane through a spanner in the works when he flew out of the dove’s nest right into the Hawks. Coming on the heels of BOE Governor Carney Mansion House dovish tilt, it added another level of confusion to the already muddled UK currency market landscape. The hawkish surprise saw cable gap  65 pips to 1.2700  as the market got caught short again toward the lower end of recent ranges

 

Japanese Yen

Despite the ripples of risk aversion the USDJPY  move towards 111.75  overnight which seemed to coincide with 10:00 AM NY option expiry and cross yen demand after BoE comments. But falling oil prices and weaker equity sentiment carried the day which continues to weigh negatively in early APAC trade.Without a rebound in oil prices, risk sentiment remains extremely fragile, and we could see a push lower

Australian Dollar

The hawkish Fed narrative combined with metal weakness has taken the wind out of AUD mainsail despite an upturn in domestic economic data. While the Aussie remains offered vs. the dollar, it came under further duress on the crosses particularly against the pound after the surprising hawkish tilt from BoE’s Chief Economist Haldane

The oil price gusher is not helping commodity sentiment, and with the market still clinging on to some small longs a convincing push below  .7550 could trigger stops and a  risk for a deeper correction to .7525-15 level. But given the focus remains in the USD narrative, I suspect the Aussie will hold current ranges in the absence of any tier one useful US economic data to support current USD strength.

New Zealand Dollar

The RBNZ left the OCR unchanged as expected at the June OCR review, and the overall policy assessment is also consistent. With very little to glean from the RNBZ assessment, but in the absence of any dovish suggestion, it should prove mildly supportive of the KIWI.The market was poised for dovish expectations as some expected the RBNZ re-instate its concern about currency over-valuation. So .we could see the Kiwi return to favour on any hint USD selling pressure

Chinese Yuan

$CNH seems to be moving on its own accord, and with the realisation, the MSCI inclusion shouldn’t have much of a currency effect in the near-to-medium term, it’s  back to the USD narrative and extremely vulnerable risk narrative.

 

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. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. 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