Dollar lacks conviction

Dollar lacks conviction
The lack of conviction and some questionable US economic data had all but stalled the USD dollar rally against most G-10. The exception being USDJPY where the election tail risk premium is being priced out and speculators are adding long positions anticipating a decisive Abe victory on Sunday.

In reality, the latest USD dollar rally was always suspect at best based solely on optimism surrounding the possibility of Taylor’s Fed Chair appointment and a slightly more hawkish tone from the Fed. The former is a guess at best and the latter, well that’s a guessing game too.

The focus should be on the US Senate face-off over two critical pieces of legislation: budget resolution vote and tax reform. With lots of demands yet to be ironed out on both sides of the floor, another cloud of uncertainty forms over the Foggy Bottom. But Treasury Secretary Steven Mnuchin was in no the mood to mince words when he told Congress to cut taxes or risk a stock market crash. Dollar sentiment will remain very guarded until these key issues are resolved.

You know the old saying, where there’s doubt stay out.And according to overnight price action trader did precisely that as the Greenback spent the better part of the NY session plodding aimlessly within confined ranges.

Little to be gleaned from US economic data overnight as both the beige book and housing data prints distort due to the hurricane effect

There certainly a lot of noise in the market but the main distraction remains who will be the next Fed chair.
The Euro

Traders have lightened Eur positioning ahead of the EU leaders’ summit where Brexit is top of the agenda. Political noise is difficult to navigate and usually best to let the dust settle before re-engaging. But the reality is Euro traders are waiting for next week’s European Central Bank meeting for direction, and the current ranges will likely hold until then.

Japanese Yen

Whether its a case USDJPY playing catch up to the Nikkie, election risk premiums were unwinding or funds buying on expectation of a convincing Abe victory, all paths lead to the same destination. Not too unexpectedly were testing the 113 handle as we turn the corner towards weeks end and Sunday’s Japanese elections.

The British Pound 

Another though London session for Sterling markets, however, Cable was able to drag itself off the mat as traders reduce risk ahead of the EU Summit on Brexit.

Brexit concerns are paramount as even yesterday boisterous UK jobs failed to get an initial rise out of the markets.

At times positioning looks arbitrary at best.  purely based on headline risk.As a result, the Pound is becoming tortuous and messy to trade.

New Zealand Dollar

Not to belabour the issue at hand but New Zealand First, the kingmaker-party post-election should announce its coalition decision today. Weaker milk auctions yesterday were more or less ignored and there an air market optimism in early trade.

Australian Dollar
Awaiting local Jobs report and the China Data dump before updating views

FX Asia

Besides the apparent Fed Chair debate, local markets are focusing on local central bank decision and the accompanying musings.

Bank of Indonesia: expected to hold rates steady at 4.25 % but markets leaning for another cut in 2018

Bank of Korea: expected to remain on hold but the voting splits ( dissidents) are of interest to the markets.The BoK prefers running behind the rate curve, and this should be the case this month. But in reality, it makes little sense turning the rate hike screws on given the geopolitical landscape.

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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