No catalyst overnight

No catalyst overnight

A lack of market agitators has led to a very parochial and lacklustre overnight session. However not too surprising as the market’s current driver, Fixed Income, walks a razor’s edge with the Bank of Canda ( BOC)  and Yellen’s Humphrey-Hawkins testimony meeting head on in Wednesday’s   NY session.  So fixed income investors will likely take their lead from whether the Bank of Canada hikes rates and track cues from  Fed Chair Yellen, more so if she taps the brakes on the FOMC hawkish lean. 

After nearly a decade of loose monetary policy, Global central banks are looking to turn down the music at the global bond party that has raged on well past its expected shelf life. After a week of continued repricing yields higher in mature economies -a  predictable feedback loop to hawkish policy guidance, that too may have run its course as the markets continue to grapple with the notion of higher interest in a low inflation world. Despite this growing sense of reality setting in, traders remain tied up in knots fearing inflationary data surprises could induce a secondary sell off.

After starting out with a bounce in their step in early Asia, yesterday equity investors found little direction overnight.After Asia caught up with the Wall Street Friday rally markets became rather directionless during the overnight sessions.

Commodity markets optimism continues to wane on revamped analysts warnings as WTI  prices nudged higher with talk of production kerbs in Libya and Nigeria and a sign of shrinking U.S. stockpiles

The forex traders had a case of butterflies in the stomach ahead of upcoming BoC and Yellen risk which saw traded volumes drop well below last month’s average turnover; perhaps the tepid volumes are reflecting reduced summer positioning, a lack of interest or a bit of both. However,  that tune will change as we move deeper into a potentially dangerous trading week.

Dr Yellen  

Her testimony could be the least impactful risk of the week. It’s highly  unlikely she will change her hawkish tone, and with the market in total  data-dependent mode, traders will look past Fed speak and focus on both  US CPI and the BOC announcement


CPI data will be the key for the USD  near-term direction. Despite the Hawks ruling the roost, it means little to traders without the inflationary impact kicking in. After three consecutive misses on CPI, the Fed’s ability to look past the transitory inflation factor will be tested on another downside inflationary wobble.

Bank of Canada

The markets completely fixated on this event and now pricing in over 90% probability of a hike in July and two full hikes by the end of 2017 implying an evolving tightening cycle Given this skew, a no rate hike could topple the apple carts and send both Fixed income and currency markets into a frenzy.The more likely scenario, however, is a one and done with  the bank expressing some lingering  downside economic concerns and a wave of USD-CAD profit taking ensues

Currency Markets

Price action on Monday was not too untypical of post NFP trade as traders tend to pick up the pieces after the weekend to digest the data.


Extremely quiet session lacking any central catalysts and with a slow week on the economic calendar traders will look to EDB rhetoric as the primary driver. Few convictions either way  despite EU  Bond markets trading a touch stronger with  German and French 10-year yields falling  3bps

Japanese Yen

The first question I fielded this morning is why is USDJPY  not trading higher given the Japan -US Bond differential back in vogue. First  US bonds rallied a touch overnight, but I also suspect some short term optionality is in play.By all accounts with the BOJ and FED divergence still in the cards, we should be trading higher. However lingering regional geopolitical concerns ( North Korea) and domestic concerns about PM Abe’s continuity are weighing on Japanese investors as a drive for downside protection enters the psyche as local equity markets look ” toppish” .  It appears these fears are tempering  USDJPY upside despite the   FED maintaining  its tightening conviction, and BoJ its easing bias

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