Event risk overload
There hasn’t been much progress in the currency markets overnight as both US yield, and the US dollar continues to struggle. And for the time being, equity markets continue to be cheered by improving earnings.
Dealers remain in cautionary wait and see mode ahead today’s high-risk events that lay in waiting.The focus today should be on the ECB, BoJ and Australian Employment data.It’s been somewhat directionless trading as both USDJPY and EURUSD moderated on the back of profit-taking while AUDUSD carries on higher into the local jobs data.
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Still waiting for the dust to settle on this trade as the Aussie is holding firm above 0.7950 after breaching the top of the two-year range earlier in the week There been very little retracement as dealers position to continued improvements in the domestic labour market.
AS we approach the A$ 80 level, it suggests we’re beyond the fear of missing out on a policy shift trade. And while we can argue till blue in the face this move is overdone the reality is the Aussie is in demand.
Equity markets are getting cheered on from every level, and the steady beat of the Chinese economy has seen Iron ore prices rising.Also, the rally in WTI spurred on by a larger than expected drop in crude oil inventories is helping sentiment across the commodity block this morning and with implied volatility dropping there definitely some yield appeal for Aussie assets.
Australian Jobs Data
Despite the mild pullback on profit taking t, which was expected ahead of today’s ECB, the trend remains intact. And while there probably a greater chance the ECB will disappoint as opposed to affirm the markets hawkish conviction, but even then, the Euro should continue to be a buy on dip given the US dollar weakness, and the market is looking to September for the key policy shift.The one concern into the ECB is market positioning which needless to say is long so if there is very dovish surprise the short term longs will run for the exits, and it could get messy for a while.
The BoJ is unlikely to move markets much on Thursday although it is expected to upgrade the economic assessment more or less. Sources on Tuesday discussed the possibility of CPI estimates being reduced and while unlikely it’s still a risk
The USDJPY is more about the crowded EURJPY positioning, so a move lower in EUR on the ECB could see a sudden unwind of EURJPY and drive the USDJPY lower.
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