What a difference a day makes, 24 little hours

What a difference a day makes, 24 little hours

US equity markets, at least for today, put tech sector regulation and the fear of an escalating trade war behind them. Investors were in buy the dip mode but unwound Monday’s meltdown when reports suggested President Trump is not formally looking at options to address his concerns with the US’s major e-retailer. While trade wars concerns have not improved by any stretch of the imagination, but fumes of fancy have reversed some of yesterday’s carnage.

Indeed Equity markets are providing the broader sentiment gauge as USDJPY topped the charts at 106.65, ten-year yields rose to 2.79 %, and gold briefly slipped below 1330.00 as risk-off hedges unwound. But trading should remain quite volatile as the prospect of a trade war between the U.S. and China continues to cast a dark shadow over global capital markets.

When it comes to trading these days, it feels like I’m playing a never-ending game ring- a – bottle, putting way to much cash at work to win a big fluffy stuffed animal of equal or less value. There is no escaping the hamster wheel syndrome in a market dictated by headline risk.

Oil Markets

Oil prices have recovered as equity markets veered higher as focus shifted back to inventory concerns after the American Petroleum Institute (API) reported a surprise draw of 3.28 million barrels of US crude. While a highly unpredictable and volatile reading it continues to provide a go-to litmus test for market sentiment.

But oil markets remain in a tangled web of headline risk while enormous speculative positioning and the fear of a crowded trade is keeping top side moves in check.

Gold Markets 

Gold prices fell overnight as US stock markets rebounded after fears of a global equity rout eased as concerns of a more profound global equity sell-off decreased, and the US dollar strengthened. But with volatility and trade tension simmering, gold will remain supported on dips. Until a definitive headline materialises that their’s positive progress on the trade front, the enormous tail risk from the US Administration Section 301 investigations has the potential to send the market into an irreversible tailspin and will keep haven trades in play.

Currency Markets

The Japanese Yen

Keep calm and don’t lose the plot. JPY was trading less sensitive to the SPX given that de-FAANG’ing drove much of the move, so traders are viewing the overnight reversal as an opportunity to increase JPY longs.Trade war is still in play and the potential for a more rukus US-China affair remain, especially on the escalation around section 301, suggests traders are not going to give up short USDJPY position easily. A case of “buy on cannons sell on trumpets. ” Short dollar-yen trade has been stirred but remains unshaken

The Euro

The Euro was weighted down by the crosses. Unfortunately, the EURUSD, for the time being, remains an incredibly dull trade.
The Malaysian Ringgit

Risk sentiment is improving, and the Ringgit will benefit this morning as the local unit is trading with a robust correlation to risk which if for the most part being framed by escalating trade rhetoric. While I expect US-China trade tensions weigh on regional bourses and looming election to dampen inflows, the MYR remains very isolated and will continue to trade range bound ahead of this week’s key US NFP

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