And how was your weekend ??

And how was your weekend??

The markets opened right on  expectations, and so far in early APAC trade the headline risk from this weekends Catalonian perplexity is not posing a significant threat to risk or the Euro which  is only trading marginally lower with investors single-mindedly focused on the critical ECB meeting Oct 26

USDJPY has bounced higher on Abe’s resounding election victory. Traders remain bulled up on USDJPY as Abe policies should remain accommodative and point to a weaker Yen over time. And while the JPY is expected to weaken medium-term, uncertainty over the Fed chair nomination could weigh on crowded near-term positions. None the less,  Abe’s landslide victory should pave the way for an   extension of Japan’s stock market rally, which could underpin USDJPY sentiment

So far risk sentiment remains buoyant after a strong  US equity futures open on an extension of last weeks US tax reform euphoria.But its early days and with a deluge of headline risk expected this week, I surmise upside follow-through will remain tentative, but indeed, USDJPY bulls are smiling this morning.

The House Republican’s return from recess this week so we should expect the usual bipartisan banter to hit the wires as the  House will take up debate on the budget resolution. The discourse should provide the street with a decent heat map to gauge overall US political sentiment. Currently, the market is buying into Trump’s  comments that the GOP has enough seats to pass the administrations economic aspirations.

Let’s not overlook the Feds Chair game of thrones.Currently, the markets are giving the nod to either Powell or Taylor; however, a Yellen appointment should present some significant headwinds for the USD but good for US equities on the assumption of a very very gradual pace of policy normalisation. Not to mention continuity is always a good thing for equity markets.

The Euro

Very much cemented in current ranges but eyes will be on US treasuries as the EURO will take its cues from USD momentum early in the week. However, dealers will keep a close eye on the current EURUSD dip to gauge market lean going into the critical ECB meeting.

After the summer run up on the EURUSD, the ECB veered dovish with timely leaks designed to temper the markets bullish view. Given the ECB sensitivity to Euro strength, it may be wise to ascribe to the ECB source leaks that that monthly purchases will be extended for nine months at a pace of 25-40bn per month which should imply currency neutrality.

The Japanese Yen

Indeed, an excellent opener for the USDJPY bulls on Abe’s resounding victory.But from here the next significant extension will likely be triggered by House resolution headlines so all eyes will be on the headline heat map. The Nikkie futures look happy in early trade, so this alone could push the USDJPY above the phycological 114.00 for a test of the key 114.30-50 region.

The Australian Dollar

With no deviation from Friday’s view, the Australian Dollar is one of the G-10 currencies with most to lose from a stronger dollar and a more hawkish Fed. The US dollar appears to be on solid footings into the weekend., but next weeks focus will be the US bond curve. Any aggressive move higher in US yields, especially if President Trump gives Taylor the nod, will put the Aussie at exceptional risk.

So far it appears the Typhoon Lan, which hit Tokyo this morning, is not dampening investor spirits.

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
Stephen Innes

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