Slow Burn In FX Ahead Of Central Bankers
Slow start to the week for markets with so many countries out on holiday (Eid or local holidays). As well, investors remain extremely tentative ahead of this week’s star-studded cast of central bankers hitting the airwaves. In addition to the ECB Forum (the equivalent to Jackson-Hole schmooze fest) being held in Sintra, Portugal this week., Dr. Yellen makes an appearance in London later today.
But despite the plethora of central bankers on tap, it’s unlikely there will be any revelations on monetary policy forthcoming. And given the proximity to the recent FOMC, there will certainly be no backpedaling from Dr. Yellen. However, the week could turn interesting, yet highly inconclusive, as currency markets get knocked to and fro, driven by month/quarter/half year end flows this week, so best not to bring out the summer desk pillow just yet.
While it’s difficult to put much trust in current price action (using overnight gold price as an example) risk sentiment seems improved. And with few negatives hitting the airwaves, dealers were left to assume the age-old adage of no news is good news. Equities are trading in the green ever so slightly, oil prices are moving higher, and FX has followed correspondingly.
The beneficiary of the positive shift in risk sentiment is the USDJPY which has been trading in sympathy with oil and equities. With the price of oil back from the dead, it provided the overnight fillip for the dollar-yen bulls. After a slow burn higher throughout the NY morning, an afternoon NY gap took out the 110.80 level (100 days moving average), and the markets are now within striking distance of the psychological 112.00 level. With the JPY crosses trading well, a push higher looks in the cards.
The pound appears to have returned to its post-election happy valley between 1.2700-1.2750 although the markets have been quiet, with volumes well below average. Even a new deal with Northern Ireland’s DUP party failed to animate. It seems that any optimism remains short-lived these days. After all, what’s to rejoice about the possibility of another election and ongoing Brexit uncertainty. Not to mention rising inflation, weak wage growth and a negative shift in recent economic data is hardly a confidence builder for the pound
The Australian is firmer on the back of higher iron ore and oil prices. The uptick in oil prices has buoyed risk sentiment, and global investors are expressing some pockets—small mind you—of interest in both commodity based and higher yielding currencies overnight. Despite the positive risk vibe, there will likely be some hesitation to breach the .7600 level with Dr. Yellen on tap, as there’s little chance of policy back peddling and if anything she may reaffirm her post FOMC hawkish view.