By Stephen Innes
On the surface, making sense of the latest Trump conspiracy theory while searching for a Nixon-esque smoking gun can be challenging. But under the surface, it brings into question Trump's political agenda, and it raises some doubt in investors' minds, more so given that market scepticism is very high concerning Trump policy. The advancing noise around this debate saw equity market trade with a very high degree of caution as fear of this latest political storm cloud that could delay tax reform.
Currency markets looked past the political noise consumed by material facts surrounding Wednesday's Fed speak and resurgent oil prices.
The Energy Information Administration's weekly crude stocks change report greased a 2.2% rally in WTI. The much larger-than-expected crude inventory drawdown reported by the EIA confirmed Tuesday's API data and sparked a meteoric move higher in oil prices, cheered on by the commodity bloc of currencies, which explains the bounce in Emerging Market FX appeal.
On Fedspeak, Fed Rosengren continues to roost with the Hawks, advocating starting to shrink the central bank's balance sheet after their next hike to avoid creating an "over-hot economy." While the comments lit a fire under USDJPY traders, EURUSD desks are still facing the Euro conundrum.
While commodity currencies cheered the latest EIA report, the Aussie dollar was picking up support throughout yesterday's APAC session on speculation the commodity rout was basing, causing a short Aussie unwind after everyone, and their dog jumped on the Aussie momentum trade on a break of .7400.
In early APAC trading, the Aussie is stuck in the middle of the road, tugged in one direction by resurgent oil but pulled in the other by Fed speak with a bit of help from this morning's blow out on the NZD. A very tentative RBNZ Monetary Policy Statement sent Long Kiwi specs running for the exit while dragging the Aussie lower on its coattail.
It's still too early to confirm that the low is in for commodities, but with a good portion of the recent unwind likely attributed to a tightening of China financial regulation, bargain hunters will probably return sooner than later. Supporting the view that the worst of the commodity rout may be behind us.
Sticking with the commodity block, this morning's move of the Canadian dollar above 1.3700 is due to the Moody's downgrade of Canada's six major banks. This downgrade will present some real concerns about the Canadian dollar and will have other developed market countries with high levels of private sector debt looking over their shoulders.
The EURUSD riddle continues to unfold, but with the pair unable to regain the 1.09 level despite the decrease in political risk, Euro bulls are certainly getting nervous. Overnight, the currency did little more than zigzag dance trading in Limbo awaiting the next major catalyst, which will likely come in the form of Friday's US economic data (Retail Sales and CPI). But it does feel that the Euro bulls are hanging on by a thread as the market looks primed to test 1.0850-25 levels.
For those expecting some policy clarity from ECB President Mario Draghi when addressing the Dutch parliament, he stuck to scripts inferring that it will be time to taper once inflation is self-sustained across the whole of Europe.
One sticky item Euro longs need to be cognizant about is a likely pivot to France's elections for the National Assembly next month, which could shift political risk premiums again.
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