Given the holiday thinned trading conditions in NY, traders were content to sit this one rather than mix it up. Japanese Yen as highlighted yesterday will continue to be the G10 focal point among growing debate if USDJPY will remain supported on dips, but the jury is certainly out on this one.While we should expect heightened susceptibility to headline risk however as “ scarehead” diminishes, odds are the markets rebound. In the meantime, traders remain on headline alert. In particular, the market is still intently watching how China responds to this unprecedented N. Korea escalation
Safe havens should stay in vogue as the headline risk remains fraught with danger.So we should expect CHF and JPY remain bid against USD near term, however in the absence of any surprises, FX dealers will key on how the US treasury markets open after the long weekend, which could prove to be the real litmus test for risk and the movements could deluge the FX markets
In addition to the geopolitical risk, traders focus now pivots to Fedspeak and debt ceiling concerns.
The G-10 markets traded nimbly as dealers took shelter amid scarce liquidity conditions in NY trade. Despite geopolitical issues I expect G-10 trade to remain very wary as the EUR consolidates ahead of the ECB on Thursday.
At some point, cooperative denunciation and hard hitting sanctions have to occur as a weak standing UN security council rhetoric has done little to restore tranquillity thus far. But with a gaggle of FED speak this week to add to the noise, conflicting signals may lead to a busy week.
The Aussie will be hogging a bit of the stage today with the RBA due out later this morning. No changes are expected, but the markets are on guard as Governor Lowe could lead to the Aussie strength given that AUDUSD is trading at the recent highs.
Given we expect little change in policy or statement so look for the Aussie bullish trend to remain in tact as commodity prices continue to firm on the up beat global growth narrative