Currency Overview
The USD dollar rout took a bit of a breather in New York but has shown few signs of reversing. The lack of USD buying appetite after the stronger CPI reading Friday generated an all clear to sell the Greenback which quickly morphed into a full out retreat yesterday lead by both JPY and CNH in Asia. And then London extended the current EUR and GBP rally before virtually every currency jumped on the bandwagon.
Oil Markets
Oil prices are moving up again after Brent convincingly broke through the critical $70 level overnight, and WTI was zeroing in on the $65.00. With few meaning full headlines to digest overnight, the ongoing bullish sentiments, and recognition of geopolitical risks are supporting the commodity
But is to true that labour shortages are holding back Shale Oil producers from going full bore ” drill baby drill.”? Well, this discussion is hitting the rumour mill this morning and perhaps something to monitor.
Gold Markets
Overnight Gold prices touched the highest level since early September during the European trading session on Monda and primarily supported by the falling USD in the absence of any fundamental headline drivers. However, I suspect speculators are adding to bullish bets ahead of the potential adverse fallout from the possible U.S. government shutdown if the budget deal is not ratified. Also, seasonality factors remain in play, but so far physical demand has been light this week but could still pick up significantly ahead of the Chinese Lunar New Year.
The US Equity markets
Stronger economic signals from the US and Europe is giving investors the confidence to continue deploying capital into equities markets.
G-10
The Euro
Despite the thinner liquidity conditions in NY and few if any obstacles to prevent the dollar from wandering lower, Traders respected current lofty levels as the EURUSD, which has been leading the dollar selling charge, has now climbed to its highest level since December 2014. But tonights NY session will be interesting after traders return from the long weekend. With short-term traders, inter-day positioning a bit stretched there is some capacity for the USD to reverse.But with the dollar trading “three sheets to the wind” and “wobbling like a drunken sailor”, there is a stronger chance that panic dollar selling will ensue and hammer the dollar lower.
Hawkish ECB minutes and diminishing political risk should continue to drive sentiment.The Euro continues to be the highest conviction trade and will remain well supported on dips. Certainly, ECB’s Hansson hawkish comments overnight would help the view as indeed it doesn’t appear the ECB is pushing back against the rising Euro, well at least some elements aren’t
Notwithstanding, the general theme is developing for G-10 traders, especially for those that missed the bus, as they will be more inclined to fade USD strength vs a basket of currencies including AUD, CNH and EUR.
Japanese Yen
After breaking through the 111 level, USDJPY now looks poised to test 110 level. No, if and or buts, 110 USDJPY is historically significant pivot point sentiment, so things could get ugly quickly if this level gives way.
Cross asset market are all surging higher on the back of the accelerating global growth theme which is contributing to frothy equity markets and higher US yields. What is unusual is JPY was still rising higher suggesting traders are still concerned about a faster pace of BoJ taper after last weeks QE reduction despite BoJ Governor Kuroda once again indicating the bank, has no intention to adjust policy just yet.
This morning Japan PPI (CGPI) M/M: 0.2% V 0.4%E; Y/Y: 3.1% V 3.2%E came in on the weaker side, and at least for now USDJPY has shown some respect for fundamentals so far by jumping to 110.75 on short covering which could trigger a short-term squeeze above 111.
Chinese Yuan
The market reached new 2-year lows for USD/CNH and given that traders are embracing CNH as a broader proxy for dollar strength the move is quite significant. Not to mention and of equal importance, “the German central bank has decided to include CNY in its currency reserves” This is all part of Chinas grand scheme toward internationalising the Yuan. And while the purchase will comprise a tiny portion of the Bundesbank’s reserves, it’s symbolically meaningful making it highly unlikely mainland regulators are going to stand in front of the RMB party bus over the near term. Indeed the Yuan Bulls are running wild in the China shop this week and from a technical perspective, the close below last year’s low would suggest a move down to the 6.30 level.
Australian Dollar
The AUD Remains the catch-up mode, but with the convergence of the global growth narrative, the AUD looks to be the perfect place to park risk and enjoy the bubbly risk-on environment. The market, however, is not expecting too much play ahead of Thursday Jobs report an China data dump
Asia FX
Regional bourses continue their ascent and In Asia FX the continuation of the USD weakness theme, with DXY meandering southbound. Most EM Asian currencies have marked gains vs the greenback though we could see some moves paired back ahead of China’s data dump on Thursday.
The Malaysian Ringgit
Monitoring the 6.95 area closely as the market is treading a touch cautiously, but this has more to do with the pause in the overall USD selling momentum in a holiday-thinned NY session. The market could pair risk and book some profits ahead of 6.95 but will look to re-engage the strong Bullish momentum signal on a break of 6.95.
Given that the bullish fundamentals are fairly well entrenched, I suspect moves will be driven more by technical signals as we approach the crucial BNM rate decision later this month.
