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Topsy Turvy Tuesday?

Dealers have spent the last 24 hours digesting Friday’s CPI fallout while keeping an eye on geopolitical risk amidst the deluge of Fed chair speculative headlines. As for the dollar, there was nothing earth-shattering within these idiosyncratic storylines usurping any broader USD trend. All in all, it made for a somewhat sleepy Monday in G-10

It’s not wise getting too comfortable as tranquil Monday’s tend to foreshadow a climatic tipping point and today’s substantial economic diary could prove to be a real test of investor sentiment.

Also, it’s worth keeping an eye on the expanding laundry list of geopolitical flashpoints. We’re not only dealing with issues in the Korea Peninsula, but now an unpopular shooting war between Iraqi forces and the Peshmerga is full blown. With Turkey-US relations souring, and as the world is still trying to figure out what to do with ISIS, the Middle East looks like a powder keg waiting to explode.

Fed Chair debate

There’s a growing buzz surrounding Stanford’s Taylor who is suggested to be in Trump’s good books, while the lack of impressive academic credential seems to be weighing negatively for former frontrunner Kevin Warsh. Also, Yellen is rumoured to be meeting with the president this week, and she is expected to be the last primary candidate interviewed for the job suggesting that decision time is near.

Euro

Traders continue to probe the EUR downside resolve after last weeks dovish Draghi comments and a slight rise in EU political risk in the wake of the surprising Austrian elections  The EUR  was primarily offered against the crosses with EURJPY looking suspectable to the bid tone on USDJPY.

Australian Dollar

The AUD was G-10 worst performer overnight despite the common signals suggesting otherwise. Metals ratcheted higher on very optimistic growth forecasts coming out of the Communist Party Summit. Also, yesterday’s China Data supported regional risk, so the overnight AUD  sell-off is a bit surprising. However, the reversals is likely more a case of traders taking profit ahead of the RBA Minutes based on  their  well-known dovish guidance

The British Pound

Brexit headlines continue to batter the Pound but with UK CPI report for September; and the testimonies of three key BoE members (Carney and for the first time, members Ramsden and Tenreyro) on tap, sterling traders will be buckling in for a bumpy ride. UK inflation is sitting just shy of the 3%, and if Septembers forecast to touch the elevated 3 % level, it will exert immense pressure on the BoE to begin the tightening cycle and should play positively for the Pound. Keep in mind; Carney has been extraordinarily Hawkish of late so his testimonies will also be a central focus for traders this afternoon.

Japanese Yen

The anticipated wave of dollar selling after last Friday’s weak CPI failed to gain much traction below 111.75, and then USD bounced to 112.20 on Bloomberg headlines reiterating that Taylor is in Tumps good books. Thre remains an air of apprehension to sell dollar this week as traders are looking over their shoulder as hawkish Fed Chair headlines unfold.

Little to report ahead of the election this coming Sunday, where Abe continues to look strong. A substantial outcome for Abe should, in turn, mean a weaker JPY.

Chinese Yuan

Chinese data was robust but had a minor impact on currency markets. Unquestionably, the market is sitting tight while keeping eyes peeled and ears to the ground for any groundbreaking policy shift to come out of the Chinese Communist Pary Congress

Author

Stephen Innes

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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