Flogging a Dead Horse

Flogging a Dead Horse

A modest risk off mindset engulfed investors at the start of the week. Unsurprisingly investors continued to ponder the US political musings while extrapolating just how the recent development would negatively impact both US fiscal and tax reform. The deluge of repetitive headlines centred on finger pointing and speculative fragmentation amongst GOP has become akin to flogging a dead horse.

The bottom line is, the bungled AHCA vote means less money to fund tax reform without ballooning the fiscal deficit. The market, which always prices in the worse case scenario, spent the past 24 hours bemoaning Capitol Hills’ fallout while questioning the US administration’s broader economic policy agenda. This mindset had left the risk compound under pressure but let’s not forget that with WTI precipitously tumbling to $47.00 per barrel level, it possibly had as much influence over investor’s when the key WTI support level that held the markets moved into consolidation mode.

Commodity markets closed the session mixed, with Gold higher but Iron Ore down 4%. The Greenback is weaker against most major counterparts but is slightly above its session lows. US equity markets finished none the worse for wear with the S&P 500 closing at 0.1%. Stock traders remain undecided about the significance of the failed health care bill and have not hit the panic button. Correctly so in my view, as it’s unlikely we’ve seen the last of the Obamacare repeal as the Trump administration now realises the importance of getting their ducks in a row.

Australian Dollar

The Australian dollar continues to feel the overhang of risk aversion but is very wobbly after getting sideswiped by another drop in Iron Ore prices overnight. Mainland’s deleveraging policy triggered the slide; it appears the markets are finally getting a reality check that when the port stock rises, it foretells a drop in prices. With the Trump reflation trade on the ropes, those stockpiles are looking even more ominous in traders’ eyes. In light of this, it would be safe to say that the Aussie will continue to underperform its commodity bloc peers and on a break of the .7600 level, we should expect AUD is selling to accelerate.


The Sturdy PMI surveys and the general improvement in the EU data continue to underpin the Euro. With the ECB members making overtones regarding shifting policy, we may be in the early stages of a significant reversal of the Euro’s fortunes as the fundamentals are starting to turn hard.

Japanese Yen

USDJPY had all but lost its lost topside momentum near term, and it would surprise me if the markets did not go all out into sell-on-rallies exemplar. Mounting headwinds from the national Moritomo scandal, Japanese year-end repatriation flow, US political uncertainty and a less hawkish Fed, has the market thinking that lower is the path of least resistance. Mind you, much of this mindset is driven on the back of discombobulation on Capitol Hill so any sign of GOP unity can shift this risk-averse mindset quickly.

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