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Sleepwalking FX Markets Move Sideways; Industrial Metals Soar

Sleepwalking FX Markets Move Sideways; Industrial Metals Soar

With US markets closed for the Presidents Day holiday yesterday, markets have done little more than moved sideways in soundless trade. With few news events to influence rates markets, it was a very dull day in the currency markets. While most assets classes were quiet, industrial metals prices soared with iron ore showing the way, trading to another multi-year high as the billet price rose three times during yesterday’s trading session.

Trader frustration is building. Narrow trading ranges persist as contrasting market drivers confuse and the Trump headline effect is waning. While dealers spent the last few trading days sleepwalking, there are enough moving parts to keep things interesting, with European risks smouldering and Fed Minutes on tap as Fed watch is creeping back in the headlines.

Euro

EUR traded a little heavy, but with much ink spilt over the French elections, the euro has held remarkably well, as traders donned their noise cancelling headphones, not wanting to get emotionally caught in the EU political melodrama at this stage. G-10 traders are struggling to find a near-term catalyst for US dollar strength. Given the pergent market drivers, euro political risk, and tepid dollar demand, I cannot help but think the current range-bound market will persist.

US Dollar

I sense a subtle shift from Trump headline driven risk to a more Fed focus as the game of words should accelerate this week with the plethora of Fed speak leading up to the FOMC minutes release. However, if we are expecting the Feds to raise the March flag, you may be disappointed as it is doubtful the FOMC minutes will resolve any debate on the fuzzy USD picture. However, of concern to dollar bulls, even after last week’s hawkish delivery the greenback failed to rally significantly and could not even maintain it prior levels

Australian Dollar

The Australian dollar continues to trade constructively as it has done since the last China PPI print.Last week’s profit taking move lower has run its course, and the Aussie is ready to pounce on the 77 level after another stellar performance in iron ore prices yesterday. With little new on offer from the RBA minutes, although members did note downward pressure on inflation could be more persistent than assumed, and other than the unlikely event of the Fed aggressively talking up the March rate hike, the Australian dollar should remain very much in play. However, the pair needs to make progress above the .7800 barrier to gain any significant momentum.

Japanese Yen

The yen remains mired in the 112-115 range as dollar bulls grow increasing frustrated that the dollar cannot make a convincing move to 115.0. With political angst brewing in Europe, I suspect this will cap dollar upticks until greater clarity on US Fiscal and Tax policies emerges.

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