A Lull In Currency Markets

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Includes: BNO, BTC-USD, COIN, CROC, DBO, DNO, DRR, DTO, DWT, ERO, EUFX, EUO, FXA, FXE, FXY, GBTC, JYN, OIL, OILK, OILX, OLEM, OLO, SCO, SZO, UCO, UDN, ULE, URR, USDU, USL, USO, USOI, UUP, UWT, WTID, WTIU, YCL, YCS
by: Dean Popplewell

By Stephen Innes

New York traders started their day off with terror incident at the Port Authority train station, but as we’ve seen so often in the past, the market is desensitised to lone wolf attacks, and held unshakable through this deplorable attack.

With a deluge of Central Banks on tap this week and year-end position sweep on the near horizon, Forex traders spent the last 24 hours doing little more than rehashing old narratives. Outside of some idiosyncratic chronicles on the NZD and MXN, it was one of the quietest 24 hours trading session in some time.

But the Greenback has some reasonably fat risk events to manoeuvre through this week like US CPI tonight, elections in the heart of Dixie, Tax Reform monkey business and the FOMC forward guidance. So don’t confuse the lull in price action overnight as anything more than a brief respite before the market goes lights, camera, action.

US equity markets have remained on the ups feeding of tax reform positivity, a likely extension of the "Goldilocks" economy and a sprinkling of US infrastructure fairy dust for good measure. While in China, markets have remained stable to positive as investors reacted favourably to the weekend’s softer-than-expected CPI report.

Oil

Oil prices ripped higher with Brent topping a 2015 chart plot after reports came to view that a 450,000 barrel-a-day North Sea pipeline has had to be shut down due to a worsening crack. Brent's chart-topping move looks quite bullish despite it comes on the back of the North Sea news. But none the less, it suggests market players remain bulled up Oil near term.

Bitcoin

Bitcoin futures on the CBOE survived its first of many ramps but as expected, participation levels were relatively low. While the naysayer vs. soothsayer debate rages, there doesn’t appear to be any real rush to judgement as the market is patiently waiting for more players with deeper pockets to enter the Bitcoin fray. At the moment, some of the major US bank futures clearers are not taking orders, but we expect that to change after year-end code freeze ends and risk managers have had some time to digest the volatility. But granted, with few if any reasonable YTD correlations to play Bitcoins off, it remains a daunting task for both compliance and risk to navigate.

Greater participation from institutional level type “whales” could ultimately smooth out the market volatility and reduce “FUD “(‘fear, uncertainty and doubt’). And hopefully, there will be fewer causes to trigger circuit breakers designed to calm the market.

But we’re long ways off from the big Financial institutions accepting Bitcoin as an investment grade product to sell to clients as trying to predict Bitcoin price movements remains no less confident than predicting the path of a raging Tornado.

G-10

The New Zealand Dollar

Continues to benefit from the market-friendly association for incoming RBNZ governor Adrian Orr who is currently the CEO of the New Zealand Superannuation. A great selection from the market perspective as it eliminates the fear of a wild card appointment steering the ship.

The Japanese Yen

Outside of blip in risk aversion which saw a low print of 113.25 after the US terror attack, the market is back to a happy place around 113.50 awaiting the next wave of market drivers.

The Euro

Remains a sideshow ahead of the ECB where the tail risk is for a more hawkish narrative and so it’s unlikely the Euro bills will lose the plot ahead of the central bank meeting.

The Australian Dollar

The more supportive narrative in China along with firming commodity markets has kept the bears at bay so far this week. And given little ambit for the Fed or ECB to surprise this week I suspect profit-taking into the central bank meetings will support the Aussie near-term.

Asia FX

Malaysian Ringgit

The ringgit is showing a bit stronger in pre-open trade, driven by higher oil prices and stability in regional equity markets. And given there is little scope for a surprise from the Fed this week and with tepid wage growth, it also suggests inflation via the CPI or PCE will be muted as was.

So as long as the Fed's interest path to normalisation remains more heavily weighted to inflation rather than the growth in this week's FOMC guidance, the ringgit will trade constructively.