Central Bank Hangover

Could be an exciting week as the market deals in the afterglow of a recognised global shift by central banks to withdraw emergency accommodation. But so far in the early trade market is tending to a bit of a Central Bank hangover  after a pivotal week for G10 currencies.

Hawkishness is very contagious and while there may be a lull in price action due to the US holiday-shortened week and of course Presidents Trumps first G-20 around the corner. I expect the central bank theme to remain the primary focus as the markets start to gauge the intensity of this apparent policy shift as well as what other global central banks will join the party.

Top side fervour on the on the EUR and CAD has a abated as dealers turn cautious waiting to see if the central bank hawkish push continues or is challenged by incoming data.

Looking between the lines, for the Feds at least, it appears there’s a gradual transition afoot beyond data dependence to a greater concern about the adverse financial market impact from elevated asset prices.

Australian Dollar

With the RBA on tap, everyone is focused on hawkish prospects for Tuesday’s RBA meeting. There’s been a subtle bid in the Australian Dollar since the Bank of Canada hawkish surprise.But demand accelerated last Wednesday when the street started to price in concerted efforts by Global Central Banks to withdraw accommodations The seduction to catch a policy shift is far too high and predictable given the string of recent hawkish surprises But in reality, it’s difficult to see where this hawkish RBA shift is justified. Traders could be in for a reality check if the RBA sits neutral and would likely dent the official coordination narrative that the markets have been building on.

Japanese Yen

Japan Prime Minister Abe’s Liberal Democratic Party suffered an epic defeat in an election in Tokyo this weekend. Obviously, the market has bigger fish to fry as USDJPY remains very resilient trading slightly lower than Friday NY close.

Euro

The Euro is taking a breather in early APAC trade. But we ended the week on a cautious note as some thought the ECB might want to soften the rhetoric after the market’s initial reaction to the Draghi Taper announcement. Perhaps traders are putting more credibility behind that mysterious ECB source that reminded the market it ‘overreacted’ to a misunderstood Draghi,

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