No shortage of drivers

No shortage of drivers

No shortage of drivers leading to very aggressive price action overnight with US traders eager to re-engage after the holiday break.

Oil prices tanked with  WTI plummeting from the $47 level to $45. However, we did see a significant bounce at the close with API data coming in a bit better than anticipated. No specific catalyst for the aggressive move lower although some wires reporting a reluctance from Russia to agree to deeper production cuts.So likely down to traders eager to re-engage post-holiday views with stop losses likely feeding the frenzy on the break of $46.level.

The FOMC minutes were perceived hawkish with US yields moving higher and USDJPY following suit. The Fed’s  verbal gymnastic surrounding inflation was rather pragmatic attributing the inflationary soft patch on idiosyncratic factors. They also made a note of systemic financial risk from elevated asset prices which supports the case for rate hike without data dependence. But with no consensus on the balance sheet runoff timing, investors  USD  appetite dwindled a  touch heading into the Asia Trade However, the Feds acknowledgement to elevated asset prices will likely keep the dollar bears at bay as this view provides more fodder to the rate hike narrative. But definitely, the minutes offer a  challenging view as the market remains tentative in either direction for the buck.  

Anticipating a reduction in short dollar positions after the hawkish FOMC minutes and as traders flatten out heading into  Friday’s NFP  No risk reward on coin flips  as there   will be plenty of opportunities to express views  post data

EURO

ECB member Coeuré’s dovish comments have been weighing on investors sentiment as the EUR struggles to gain any traction above 1.1350. Coeuré’s  lean does question the current ECB hawkish narrative the markets have been running with, but he’s likely doing little more than tapping the markets brakes after it’s  overzealous read on Draghi’s Sintra comments when EU equities cratered. 

Canadian Dollar

CAD predictably took its lumps as oil prices came off in early NY trade and continued to wobble at the beginning of Asia trading above 1.2960 level as US dollar remains firm in early trade. But with the BoC’s July meeting next week and  Governor Poloz confirming his hawkish view entering the official blackout ( no comment)  period which begins on the week before the formal policy announcement, the loonie shouldn’t run too far off course. But the oil price storyline and positions squaring remains the wild card factor in the absence of central bank guidance.

Australian Dollar

Weaker oil and a slightly stronger USD in early Asia has dented  Aussie sentiment.However, it remains tentatively bid on dips despite the RBA failing to live up to the markets hawkish lean. While commodity currencies lead by  USDCAD staying in favour and providing support for the Aussie the shifting oil price narrative does raise concerns.

Japanese Yen

The USDJPY is entirely correlated to moves on US fixed income but worth noting 30-year  JGB’s are trading at the highest level since late Feb

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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