Lather, Rinse, Repeat

by: Dean Popplewell

By Stephen Innes

The markets are going through what feels like an endless loop of lather, rinse and repeat when it comes to the US dollar.

But while there was a lot of noise on Wednesday, traders are lacking a definitive direction on numerous fronts.

US Markets

US equity markets fell, led by tech giants. Indeed, when CEOs are forced to testify before Congress amid a move for tighter regulation of the tech industry, nothing good would ever come of that. Investors did their best version of a cut and run while battening down the hatches, as NAFTA negotiations and Section 301 China tariff negotiation timelines expire.

Oil markets

The API reports US crude stockpiles dropped 1.17 m barrels last week versus an expected range of estimates of 1.25 to 2.5-million-barrel draw. But the devil may be in the details, where Cushing stockpiles are up .6 million barrels.

Prices have been trading softer in the wake of the Tropical Storm Gordon ramp, which ripped through the Gulf but skirted virtually every oil and gas facility.

Also, we're going through little more than a technical correction with the S&P Oil & Gas E&P Index turning lower while Nat Gas and Heating oil look suspiciously susceptible to further losses. Throw in some profit-taking ahead of tomorrow's US-China Tariff deadline and the more definitive Department of Energy Petroleum report. And the market is trading with a softer bias today.

Brent Crude New normal?

Is $70-80 Brent the new normal? Well, if unnamed sources connected to Saudi oil are to be believed, it is! Neither an original story nor a new idea but comes on the back of prompt Brent Trading in a $70-80 range for the past five months, and for those of you that know me, when it comes to the markets, I'm a staunch believer that there is no such thing as coincidence. So if OPEC is tightly monitoring supplies to keep markets in the current sweet spot, it's showing up on the charts.

Gold Markets

Price action has been encouraging despite the expected wave of technical sellers above $1200 that was joined by a hodgepodge of Macro traders who are steady sellers on rallies given the robust run of US economic data, which suggest the Fed remains on course for 2 interest rate hikes this year and should be supportive of the USD.

But ultimately, in the absence of a sizeable directional move on the USD, I would expect $1190-1210 to hold near term.

Currency Markets

Emerging Markets

Malaysian Ringgit

BNM has predictably left its policy rate unchanged at 3.25% yesterday, with a neutral policy statement accompanying the decision. With so many political changes and internal policy adjustments, there was no need to add another level of complexity to the confusing landscape.

We could expect BNM to remain on the sidelines for the foreseeable future and well into 2019, as the lack of inflation and subpar GDP provide policymakers with no cause to move rates higher. However, given the economic headwinds due to the reduction in infrastructure spending, and more austerity measures aimed at reducing the burgeoning budget deficit, the next shift for the BNM may be a rate cut towards the end of 2019. As such, I'm revising my year-end target for the ringgit considerably higher to USDMYR 4.20 on tepid growth outlook, while traders start to position for a dovish BNM in 2019.

Argentine Peso

The Argentine Peso produced a large-scale rally in late NY, following central bank intervention and talk of the IMF's "White Knight" galloping in for the rescue.

Turkish Lira

Indeed, the weaker links in the EM chain were encouraged by this news. But the Turkish lira did spend the day above water for a change as EEMEA traders pare bearish bets as the market pivots to the next Central Bank of Turkey policy meeting, September 13, where the traders in my circle are expecting anywhere between a 200 and 400 basis point rate hike to follow.

Indonesian Rupiah

Over in Asia, where the currency sharks are circling the psychological USDIDR 15,000 level, Indonesia's Central Bank intervened to stem the one-sided speculation, but the IDR currency bears still smell blood given the massive current account deficit. However, there are some signs that others are clawing for buying opportunities. You know the old contrarian mantra, "Buy when there's blood in the streets, even if the blood is your own."

Nonetheless, the pragmatist in me says to wait for the tariff noise to abate before re-engaging the risky stuff; easier trades to be had in G-10, but even there it's slim pickings.

G-10 Markets

Also, besides awaiting NAFTA's fate, EURUSD remains the "no-trade zone," and USDJPY is confined to the range and capped at 111.70 for the time being; it is back to the Aussie dollar again.

Australian Dollar

I'm surprised by the resilience of the Aussie given the commodity carnage that is expected to continue the weakness in EM, which is driving the buy-all-dollar bus and the tepid Chinese PMIs that counterbalanced the better-than-expected GDP yesterday. I think flat out AUDUSD is a problematic trade at current levels given extended shorts, and while all the above suggests a break of .7150 is in the offing, even more so as the more hawkish interpenetration of the RBA rate decision comments is certainly not helping the Aussie at this point either. Regardless, the AUDUSD is holding firm.

The Canadian Dollar

The Canadian dollar held relatively stable after a slight wobble on an initial less hawkish interpretation of the Bank of Canada policy statement. But the real story remains NAFTA as traders remain on the headline and twitter alerts, as reading between the lines on comments from Freeland and Trump, they suggest an end-of-week deadline to settle this mess. Never so much may be hinging on the negotiating skills of so few.