Many Moving Parts

Many Moving Parts 

The various evolving narratives and lots of moving parts contributed some vibrant price action overnight. While international trade relations and the FOMC continue to lurk, markets took note of positive news regarding Brexit, yet another possible ECB policy shift and a tech-driven decline in the US and global equities markets.

Primary US stock index joined Global markets in the red Monday after Facebook share prices tanked over improper data use weighed on the tech sector. Cambridge Analytica was able to tap the profiles of more than 50 million Facebook users without their permission which could be an isolated issue or the symptom of broader matters at Facebook. This security breach could end up being a significant turning point for the social media and network portal.

Asia markets were already plumbing the depths on the prospects of Apple ‘s continued move to vertically integrate by both producing and manufacturing the new MicroLED technology in-house.

All in all global equities are mired in their worst run since November

Currency Markets

While the overwhelming focus remains on the FOMC, G-10 traders applauded the constructive Brexit news overnight and with most investors underweighted GBP assets; there was a scramble for topside exposure with the Pound punching well above its recent weight. As for the dollar fortunes, it all comes down to whether or not a steeper shift in dot plots is in the cards as the packed in March interest rate hike in itself is not sufficient enough to extend the USD’s recent appeal.

The Euro

The Euro was trading at dovish extremes entering the weekend but has bounced back with a vengeance after ” ECB sources” suggest the doves on the ECB board acknowledge QE should end this year and are okay with the market pricing in a 2019 rate hike. The single currency rallied 1.2260 towards 1.2360 in quick order on Monday as short-term Traders were caught out of line triggering some near-term stops.

The Japanese Yen

The USDJPY  continues to trade heavy as this pair should be the most prominent beneficiary of the re-emergence of the weaker USD narrative even more so in this hyper risk-averse market. Abe political noise and equity market declines continue to dent sentiment.

The Malaysian Ringgit

EM and commodity currency continue to underperform in this risk-averse environment. But with the markets starting to price in a close call on Fed to shift to four rate hikes in 2018, the market has been paring back short USD MYR and $ASIA positions, so  the Ringgit continues to struggle in this environment

The prospect of a faster pace of Fed policy normalisation and a risk-averse market provides a toxic backdrop for near-term Ringgit sentiment.

Oil Markets 

At one point overnight OIl prices came off very aggressively as Wall street caved. But the downside susceptibility is also a cause and effect of the increase in US shale drilling where weaker speculative longs remain quite fragile to global risk sentiment

However, tensions between Saudi Arabia and Iran, as well as concerns over Venezuelan crude production, continued to underpin prices and the markets have recovered soundly.  Iran nuclear tensions are not leaving the picture anytime soon, and the possible reimposition of US Oil sanctions should the keep Oil bulls charging near term.
Gold Markets 

After knocking on crucial support level doors overnight, Gold prices bounced higher amid equity weakness and heightened geopolitical tensions between Saudi Arabia and Iran.

While gold investors remain incredibly nervous at the prospect of a shift in the Fed dot plots fearing of possible FOMC induced knee-jerk lower. However, since risk aversion is not expected to decrease anytime soon and with President Tump beating the trade war drums, demand for haven assets should remain firm over the medium term, even more so with core Gold investors.

While gold prices have bounced admirably over the past few US rate hikes, but those were interpreted as a dovish rate increase. This time around everyone is more apt to defend against a hawkish narrative.

 

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