The Bannon Bounce ?

The Bannon Bounce?

The markets pivot to Jackson Hole this week could obscure the underlying political Trump risk that currency markets have been feeding off. And while debate unfolds as to what Bannon’s removal means for the Trump administration economic agenda, it’s difficult to believe the answer to all that ails the West Wing, was a Steve Bannon departure.

Traders were looking to square positions ahead of Jackson Hole and even the subtle notion that Bannon’s departure would skewer the presidents contentious ” America First” policies was signal enough ahead of the potentially Topsy Turvy Thursday when Jackson Hole summit commences. Overall one senses the FX markets are adopting a  neutral to flatting bias in early APAC trade

US Dollar

Whitehouse politics will remain in play, but given some of the outsized currency moves of late, it’s not too surprising dealers are paring short dollar risk as the shift to the Jackson Hole summit will put the focus back on Centeral Bank watch. And of course, dealers will start to factor in the best case calculus for the USD dollar. As unlikely as it may be, if the Feds provide a  definitive balance sheet reduction date, and affirmation of a December rate hike we could have an abrupt shift in USD sentiment.

Japanese Yen
Given the North Korea Geo risk and the Whitehouse expanding quagmire, it’s difficult to view Friday’s move above 109.25 USDJPY as little more than a dead cat bounce. But with the shift to Monetary Policy on tap as we approach Jackson Hole, market moves are more about risk paring than risk taking

There’s  been a lot of anticipation on whether ECB President Mario Draghi used the Jackson Hole platform to signal a change in ECB balance sheet policy. However, the unknown ECB sources threw cold water on the debate last week, and while the EURO has remained bid on dips, it’s  lacked any serious upward momentum since. And with the ECB minutes showing officials expressing concern over EUR strength, it’s hard to hard to see this view changing ahead of Thursday

Australian Dollar
A highly debatable rebound in risk appetite saw the Aussie trading above the .7940 level into the weekend. From my seat, it looks more about weekend positions squaring rather than anything else. With the lack of fundamental drivers for the moment, best to pick your spots wisely and trade nimbly.

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