Every which way but down

Every which way but down

There has been a huge shift in momentum for the USDJPY  overnight, as the market pivots back to Trump protectionism; Trump tax and fiscal spending updates. So much for the Trump trade being dead and buried, as US 10 year yields moved to 2.34%. Equity markets were euphoric with the NASDAQ breaking 6000 for the first time while gold slipped to 1260 as French election risk and  North Korea tensions abate.

What initially started off as a  post-French election relief rally has turned into a full-out global equity rally. Despite higher US yields, equity investors were ecstatic about the current market narratives, and Wall Street had a stellar day on the prospect of tax cuts being announced on Wednesday, strong corporate earnings and ongoing relief from the French election results.

On the perpetual market rumor mill,  there was an ECB leak that implied no changes this Thursday but a possible adjustment in language at the June meeting. A Reuters story citing “sources” claimed that the ECB would send a signal in June towards a reduction in monetary stimulus. The decline in political risk in France was seen as supporting such a move.

The Tump protectionism play saw a stronger dollar against high yielders and commodity currency as market re-visit the US protectionism theme. Traders are viewing comments from US Commerce Secretary Wilbur Ross that stated a 20% tariff on Canadian softwood lumber imports is likely as a litmus test for Trump Protectionism and dealers were quick to sell off currencies with a significant portion of exports derived from the primary industry.

The Canadian Dollar

After cutting my chops on Bay Street (Toronto Canada), I can assure you the softwood lumber dispute is nothing new and has been making headwinds in one form or another since 1982. While the tariff is not economically damaging for Canada, the unnerve and over reaction on the Dollar Canada desks is likely due to the broader NAFTA and political considerations this move may have.

USDCAD Canadian Dollar Lower After Lumber Tariffs

Loonie Goes to War

Australian Dollar

Commodity currencies have come under pressure overnight, probably led by the move higher in USDCAD as the  US protectionism theme rears its ugly head. However, the  AUD has outperformed the CAD overnight post-Trump Canadian Softwood Tax. While risk sentiment is soaring, and with iron ore off its lows we should expect the Aussie to hold above the .7500 level but with today’s CPI the key local major event dealers are anxiously awaiting the news as it could have far-reaching RBA policy implications.

Japanese Yen

USDJPY was one of the best performers overnight, rallying from low 110s to a high of 111.20.  With buoyant risk appetite, higher 10 year US yields and traders intrepidity leading the charge. The play is all about the anticipated Trump tax reform as traders continue to clamor for upside exposure


Huge uptick in two-way volumes overnight. EURUSD continued to be the main attraction as buying accelerated after the Reuters article suggested the ECB could reduce monetary stimulus in June. Removing the easing bias would be supportive of the Euro and even more so as investment flow seeks out relatively cheap European assets and election hedges should continue to unwind.

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