A Trendless 24 hours

A Trendless 24 hours

For the most part, its been another trendless 24 hours in forex land as the markets appeared content to bang around in current ranges ahead of CPI. While tax reform has again stumbled out of the gate, the dollar has recovered some semblance of composure after PPI has surprised to the upside, boosting expectations for tonight’s pivotal inflation print ( CPI).However, it’s  apparent that until more details are reaped from both the Fed and Tax reform, the market  will play home on the range second guessing  positioning and  doing  an about-face  on headline risk

In a headline giddy Thursday, there appeared to be a significant compromise brewing amongst Republicans but given the bloated nature of the current Tax code for every compromise tabled there seems to be another band-aid fixed elsewhere. Understanding and patience will be the name of the game for this to pass but it would not surprise me if we found ourselves back dead in the water next week.

The pound was the most prominent headline chaser falling to 1.3120 on an ambiguous headline ” BARNIER SAYS BREXIT TALKS HAVE REACHED DEADLOCK”. IN fact, this comment was completely misread as he was simply referring to the ” divorce bill”.Then GBP rocketed to just shy of the 1.3300 level when German newspaper Handelsblatt says Barnier may offer the UK a 2y transition stay in the EU market if the UK agreed to settle its financial obligations with the EU and sign a divorce agreement.The proposed extension sits well with the markest and reduces the likelihood of a “Cliff Edge” scenario, but this is not a new negotiating ploy so chasing top side sterling risk is definitely at one’s peril.
On the Fed Chair front, its expected this critical decision will be not arriving until November with the latest market straw polls indicating 50 % of participants view Jerome Powell as the incumbent. This view has also weighed on dollar sentiment this week given his more centrist -doveish lean than the markets early front-runner Kevin Warsh.

What have we gleaned from this week?

1) The FOMC minutes confirmed that the Fed is erring on data dependency. Not surprisingly when they are now faced  with both a possible interest rate hike and the daunting task of  balance sheet reduction

2) Tax Reform, for the most part, remains stuck in the muck despite some concessions.

3) EU political concerns are fading.

The sum of these parts suggests buoyant risk appetite a less attractive US dollar with higher Beta currencies like the Aud and Kiwi the near-term shooting stars.  But let’s see what surprises CPI may have in store.



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