Why all the Risk?

Why all the Risk?

European risk steadied overnight after yesterday’s  very wobbly Asia session when   Greek government spokesman Tzanakopoulos denied the  German newspaper Bild report that Greece could forego next bailout payment. But for those of us that worked through the Greek debt saga,  this has an all too familiar ring suggesting there’s likely more drama to unfold.

The Merkle -Trump War of Words is catching dealers attention after President Trump called out Germany’s massive trade surplus and questioned their financial contribution to NATO.But this is typical Trump modus operandi and apparently not overly concerned about ruffling a few feathers when it comes to calling out Germany for its unfair trade advantage. And while it is disconcerting for investors to see these two go toe-to-toe., but let’s face it, Trump is only stating what every trade economist and other German ally has known for years but were unable to negotiate more favourable terms of trade.

Add another event risk to the calendar as Former Italian PM Matteo Renzi on Sunday said he was for holding an election at the same time as Germany’s in September. Anti-establishment parties are making the huge inroads in Italy potentially escalating risk for the Euro. The hyper-emotional Italian elections always take a tricky path and will be fraught with uncertainty down to the wire.

The UK election chances will likely see the GBP go through a bad case of Yo-Yo syndrome in the weeks ahead. Trading  and speculating sentiment polls is always a dangerous game so fasten your seatbelt, turbulence ahead


Despite the mounting Euro risk, the single currency has not gone out of favour and rebounded convincingly from the 1.11 levels. Driven by the Greece’s  Bild retraction along with an active EUR bid after a Reuters headline – RTRS – ECB LIKELY TO DISCUSS REMOVING EASING BIAS AT JUNE MEETING BUT DECISION FAR FROM CERTAIN – SOURCES. , the   EURUSD surged to 1.1204 as the market is super sensitive to ECB headlines ahead of June 8 meeting.That said, it’s hard to make a meal out of the headline after ECB President Draghi sounded oh so cautious the day before. But it does highlight just how trigger-happy and ECB headline sensitive dealers are these days.

The ECB headlines overshadowed  US data as PCE core printed slightly higher than consensus but provided little more than light tail winds for the Greenbacks sail.

I suspect the Traders will continue to fret about the mounting Eur risk which could temper upside expectations until further clarity into the ECB’S forward guidance at next week’s meeting  There remains lots of vulnerabilities in this trade which could make for a rough week ahead.

Japanese Yen

USDJPY continues to trade in a mild risk-averse state undercut by softer US Treasury yields. The  bid in  US fixed income emerged   when  oil prices continued to spill,  and US equities turned south

Is it all about oil? Likely not as investors should be resonating with  Fed Bullard who pulled few punches yesterday on Bloomberg TV   and stated it’s  time for Washington to “get off the pot. ““Washington does have to deliver at some point, and I think that is a concern going forward, whether the honeymoon period would end at some point, and maybe the reality of American politics would settle in,” Bullard remarked, before delivering the following rather skeptical assessment: “We’ll see if that happens or not. I think the jury is out on all that.”

Australian Dollar

A soundless overnight session as the market’s focus was more on shifting Euro and Risk sentiment and the AUD remained rather sidelined trading within defined short term ranges.  In tepid trade, the Aussie was the beneficiary of a weaker US dollar driven in part by month-end portfolio rebalancing demand.

The Aussie received a bounce this morning after China May Manufacturing PMI which beat market expectation and is providing a  slightly better than expected growth pulse in the region.The print should provide a temporary boost to risk sentiment. However, we should expect the Aussie  sold on rallies as the outlook for hard commodities continues to sour, and the PMI print was not robust enough to shift growing forward-looking concerns about Chinas economy

New Zealand Dollar 

The Kiwi is trading very confidently after the ANZ business confidence published a 3-month high sending the AUDNZD cross, a current market favourite below the 1.05 level.

Chinese Yuan

The Fixing is back online today, but traders are more focused on the current CNH funding crisis. So far Tom next is trading at 40 pips as the market is hoping for some front end ease from the PBOC. Todays Fixing midpoint is at 6.8633 vs. 8.8698 prior.

Tom Next cranked higher throughout the Asia session opening up at 40 and trading +70. The tight financing conditions have seen USDCNH longs pair back, and  decent dollar selling as near term specs are content to pick up the carry.

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