What's Next ?

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Includes: CNY, CROC, CYB, FXA, FXCH, FXY, JYN, UDN, USDU, UUP, YCL, YCS
by: Dean Popplewell

By Stephen Innes

The forex markets remain somewhat brittle, as volumes continue to run light and liquidity has started to erode earlier than normal entering the final leg of 2016. As has been the case most of the former trading quarter, traders are at the mercy of quick moves driven by headline risk and continue to kick the can from news event to news event. Outside of the event risk, liquidity continues to run low between events and markets remain delicate to any headline-driven risk.

Markets were unmoved by near consensus US economic data prints.

What's next on the risk horizon? Well, traders are pivoting to next week FOMC.

Australian Dollar

The Australian dollar continues to trade sideways within the well-established .74-.75 level. The .7500 level continues to offer substantial resistance with Aussie dollar supply on offer up to the .7525 level, the current 200-DMA Avg.

As expected, the RBA delivered little of note as the market prepares for today's Q3 GDP print. With the market pricing in the possible adverse outcome, we should expect some reaction to the headline but overall risk on this trade remains symmetrical given positioning on the Aussie is light now.

The larger Aussie narrative remains driven by the external factor and broader USD moves. While the more general US dollar risk continues to consolidate, expect the Aussie to remain mired in its current .74-.75 holding pattern.

Japanese Yen

The market remains glued to the 114.00 level, and despite the year-end cautionary tale I have been weaving, the USD-JPY continues to behave well with dips very short-lived and well supported.

Momentum is keenly focused on the 2.5% level in US 10-Year Bond - with the market hesitant to move into full dollar bull mode until that level gives way; however, the buy on dip strategy remains intact. Even with the US 10-Year yields looking "topish" heading into year-end and as USD support wanes from the interest differential perspective, the improving global risk sentiment should provide a tailwind for the long USD-JPY trade which could support a move on USD-JPY above 115 heading into year-end.

Yuan

With the market more fixated on an unfiltered pricing "glitch," it shows how incredibly sensitive market watcher is to the potential spillover effects of Trumponomics.

Always best to check the correlated trades; if the prices are not obvious, question the validity of the prices, especially through non-transactional resellers of currency data.

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