Trump’s Bay of Pigs Moment

Trump’s Bay of Pigs Moment

The relentless risk off moves in currency markets appears to have abated somewhat after Wednesday’s pyrotechnics in Asia.The dollar took on a distinctly August inspired flavour in NY afternoon trading within extremely subdued ranges.

But looking at price action across asset classes, the North Korea entanglement remains the number one agitator. US ten year yield traded towards 2.2 % gold ripped through $1,277 per ounce in afternoon NY as equities have turned decidedly edgy amid the intensifying geopolitical and fiscal uncertainties.

Liquidity conditions have a way of exaggerating market panic, but when a cowardly act of terrorism was reported in Paris, it increased the markets anxiety level 10 folds as risk sentiment quickly devolved.But it will be yesterday Trump’s Bay of Pigs moment that will keep traders on edge. However, we’ve seen this picture before and the geopolitical status quo usually returns to equilibrium fairly quickly.But it should even more so this time after Secretary of State Rex Tillerson extinguished the raging political fires. CNN reported that Tillerson said that “nothing that I have seen, and nothing that I know of, would indicate that the situation has dramatically changed in the last 24 hours. Americans should sleep well at night.”

Traders very keen to hear Bill Dudley, the Boss of the powerful  NY Fed  who will speak on Thursday and the markets are anticipating he will provide a   key on Fed policy and impart some influence on global sentiment.
Australian Dollar

The regional geopolitical risk overhang continues to weigh on the Aussie. But taxing liquidity conditions contributed to some outsized moves yesterday after the AUD was sideswiped by CNY and AUD data that marginally missed the mark. Yesteradtys aggressive sell off after Chinese CPI miss the mark was a combination of bad timing and low liquidity rather than anything else. But the current risk averse mind set aside. With the US “reflationaistas” coming to the fore after some seriously buoyant jobs data all but setting the stage for a robust US economic recovery, we may only be one solid US data point away from a big repricing of December US rate hike probabilities.A more aggressive Fed is the most significant headwind for the Aussie dollar bulls


A short  lived peak below 1.1700 raised a few eyebrows but with little follow through, the tried and tested buy the dip mentality ruled. Participation remains light as traders continue to look for larger position squeeze to get back long EUR positioning comfortably

Japanese Yen

Recent moves are all about traders getting in front of haven Yen repatriation flow on global risk aversion. And predictably those bets are unwinding after Secretary of State Tillerson doused the flame of fury. Japanese investors, who hold considerable foreign investment exposures,  are prone to repatriate on risk aversion. This despite the proximity to North Korea. Until the missiles actually launch,  this will continue to be the go to geopolitical risk averse investor mind set.

Korea Complex 

With geopolitical tensions increasing on the Korean Peninsula, KRW could remain under pressure as the market should continue to engage USD longs until the pressures abate.

The KOSPI has been a real pain trade since the NASDAQ swoon.With the market turning sour on Korean assets in the wake of the latest brouhaha, investors will likely be in for more distress and sleepless nights before things get better.

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