USD U-Turn

Dollar U-Turns 

US equities turned lower overnight as the US Consumer Confidence Index printed well below market expectations.

The WTI traded heavy after Russia appeared to backtrack from any production cap accord. We could see further pressure on equity markets because oil prices plunged in late NY trade after the API reported a much larger than expected build in US crude inventories, which surged to 4.8 million barrels cancelling out last week’s 5.2 million barrel draw.

Fixed income volatility remains tepid ahead of next week’s dearth of Central Bank meetings.

The USD rallied early in New York but ran into a bout of trader long dollar anxiety, which heightened after the US consumer confidence figure fell acutely for October and had negative revisions for September. The sentiment index fell from 104.1 to 98.6 versus 101.5 expected. The fall in the Consumer Index is a clear sign that the divisive build up to the US election is weighing on consumer optimism, as consumer views on the present situation, expectations for the future and jobs all declined.

Japanese Yen 

After trading to 104.80, the USDJPY made an abrupt U-turn on the data, which highlights just how sensitive traders are to US economic data and as the markets run hyper-twitchy ahead of the US election.

Lower oil prices will likely weigh on risk sentiment short term, despite the USDJPY remaining tentatively supported on dips; short term momentum is certainly lower in early APAC trade. Given how intrinsically bearish the market’s view on risk sentiment is these days, the fear is that current longs could get squeezed if equity markets tumble.

Moving forward, the JPY should continue trading with a softer bias versus the USD as yesterday’s break above the 104.35 resistance was a constructive move for USD bulls.

Interest rates differential could suggest a move higher in USDJPY. If the week closes above 104.50, it could open the door for an aggressive move to 106, as it would signal that the market is comfortable entering into a higher USDJPY range.

Australian Dollar 

After tracking the Canadian Dollar most of the Asia session yesterday, sentiment then shifted to the broader USD bias overnight. The AUD had a relatively resilient 24 hours, as it was initially buffered after China’s iron ore futures popped to a new 2016 high and as the Dalian exchange on Iron Ore surged 6% to limit up.

In the NY session, the AUD remained supported, but markets are trading mixed ahead of the key Australia’s Q3 CPI data.

The Q3 CPI data came in much better than expected with the headline printing .7 % vs. .5 % Q o Q, and the trimmed mean at .4% in line with expectation. Certainly, a Goldilocks number for the RBA that indicates inflation is ticking higher supporting the notion that developed economies ex-Japan are re-inflating, which cements the consensus view that the RBA will remain on hold through year end.


Chinese Yuan

The PBOC is allowing greater flexibility in the USDCNH trading band, so activity is running well above average

Overnight, the USDCNH sold on the back of the broader USD sell off, and the weaker long USDCNH positions were stopped out on a break of 6.78 level. The markets are very controlled as open market forces are dictating recent Yuan moves.


Malaysian Ringgit

The Ringgit had a good day yesterday as foreign investor appetite for MYR bonds picked up, outweighing the negatives from political risk and current account narrowing. I suspect that investors are looking at the current political risk premium and see value in the MYR . We could see some bargain hunting take shape in the days ahead.

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