Don’t get too complacent; it’s only Tuesday

Don’t get too complacent; it’s only Tuesday

The markets took Monday off after a frenzied NFP Friday. There remains a bit of confusion regarding Friday’s dollar price action.However with EUR struggling to gain any momentum above 1.1800 overnight, it would suggest traders are still expecting a deeper USD correction, so the dollar bears are holding off for now.

The dollar remains tentatively bid post-NFP as dealers are likely more concerned with overcrowded dollar shorts that appear more brittle now than in anytime during the past 4-6 weeks

The data void overnight has certainly dampened enthusiasm in Forex markets. However, all eyes are looking towards Friday’s US CPI print.Given the enormity of inflation metrics in the Fed’s rates outlook, I suspect traders will be reluctant to commit big views before the event and even more so given August’s sparse liquidity conditions

Equities continue to enjoy the “Goldilocks Markets “ as the Dow recorded its ninth straight record close. Certainly, investors are showing little concern for ” irrational exuberance. ” but provided the Feds keep the money tap open, the party will rave on.

Fed Bullard rolled out this usual dovish rhetoric anguishing over the low-inflation environment while crediting the USD weakness entirely on EU economic growth and a hawkish ECB. Fed’s Kashkari predictably waxed dovish on the low inflation low wage growth narrative. But investors could turn circumspect as the market prepares for the numerous possibilities around the US debt ceiling showdown.

Euro

No significant data to hang one’s hat on today but dealers are setting sights on Draghi’s highly anticipated speech at Jackson Hole. But given the two way USD risk due to a combination of thin August liquidity and crowded dollar short positioning makes for dangerous trading conditions.

That said,  I think the market is in agreement EUR strength should run further implying the EURO will remain bid on dips,  but little momentum in the market’s traders views are clouded.

Australian and New Zealand Dollars

Both AUD and NZD are trading on the soft side following US NFP

The Kiwi has remained under pressure after New Zealand lowered their  2y Inflation expectations. But of course, the focus this week is on the RBNZ OCR on Wednesday. No policy shift is expected, but given the run of weak domestic data and a stronger local unit driven by a weaker US dollar, there is room for a dovish lean from the RBNZ in an attempt to influence the currency. The Kiwi’s underperformance on the crosses would suggest this view also.

As for the Aussie, it’s a very sparsely populated domestic macro calendar, so the market remains in wait and sees mode. But Low oil prices and a looming OPEC meeting continues to weigh massively on the Energy sector, and by proxy the commodity bloc.

Regional focus shifts to China trade figures due out later today
Japanese Yen
Extremely quiet trade and has barely budged over night. A sign that dealers are unwilling to engage and waiting for clearer signals.

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
Stephen Innes

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