Event risk overload

Event risk overload

There hasn’t been much progress in the currency markets overnight as both US yield, and the US dollar continues to struggle. And for the time being, equity markets continue to be cheered by improving earnings.

Dealers remain in cautionary wait and see mode ahead today’s high-risk events that lay in waiting.The focus today should be on the ECB, BoJ and Australian Employment data.It’s been somewhat directionless trading as both USDJPY and EURUSD moderated on the back of profit-taking while AUDUSD carries on higher into the local jobs data.

But President Trump’s Administration is worth keeping an eye on as the political quagmire thickens

Australian Dollar

Still waiting for the dust to settle on this trade as the Aussie is holding firm above 0.7950 after breaching the top of the two-year range earlier in the week There been very little retracement as dealers position to continued improvements in the domestic labour market.

AS we approach the A$ 80 level, it suggests we’re beyond the fear of missing out on a policy shift trade. And while we can argue till blue in the face this move is overdone the reality is the Aussie is in demand.

Equity markets are getting cheered on from every level, and the steady beat of the Chinese economy has seen Iron ore prices rising.Also, the rally in WTI spurred on by a larger than expected drop in crude oil inventories is helping sentiment across the commodity block this morning and with implied volatility dropping there definitely some yield appeal for Aussie assets.

 

Australian Jobs Data

The Australian Jobs data just missed estimates, but this is robust enough to push the Aussie dollar higher with the full-time employment change greater than expected. On cue,  Australia 3-year yield is trading at  the highest  since Dec 2015, following full-time employment change
The Aussie is stalling after the initial move suggesting some initial profit taking setting. Regardless the A$ continues with its gravity defying act, and push through A$80 is likely in the cards.

Euro

Despite the mild pullback on profit taking t, which was expected ahead of today’s ECB,  the trend remains intact. And while there probably a greater chance the ECB will disappoint as opposed to affirm the markets hawkish conviction, but even then,  the Euro should continue to be a buy on dip given the US dollar weakness, and the market is looking to September for the key policy shift.The one concern into the ECB is market positioning which needless to say is long so if there is very dovish surprise the short term longs will run for the exits, and it could get messy for a while.

Japanese Yen
The BoJ is unlikely to move markets much on Thursday although it is expected to upgrade the economic assessment more or less. Sources on Tuesday discussed the possibility of CPI estimates being reduced and while unlikely it’s still a risk

The USDJPY is more about the crowded EURJPY positioning, so a move lower in EUR on the ECB could see a sudden unwind of EURJPY and drive the USDJPY lower.

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 specialises in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is 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 Interest Rate Futures, Money Markets and Precious Metals. Before joining OANDA, he worked with organisations like 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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