The Dollar is not quite ready for prime time just yet

 

The USD, not quite ready for prime time just yet
The technology sector woes continue as Google parent Alphabet Inc shed more than 5 % on a massive drop in gross margins as Google continues to burn through cash in its attempt to challenge Amazon in “smart world” technology and cratering other FAANG stocks in its wake. Apple was also down 1.7 percent, falling for the fifth straight session of fears of slowing demand for iPhones.

While there has been a sense of post-earnings pessimism permeating the markets suggesting this is about as good as it is going to get. Comments from industrial bellwether Caterpillar during the company’s earnings conference call that Q1 results were the companies “high water mark” for the year, had investors rehashing doubts about the global growth narrative and fuelled further downward momentum on US equity market.

The sudden surge in US yields had already been weighing on equity sentiment, but when you factor in the skid in technology stocks and Caterpillar less than reassuring outlook, it makes for a very rough day on the trading floor.

After testing the 100-day moving average on USDJPY and reverting lower. The US dollar appears not quite ready for prime time just yet. Nevertheless, beyond the technical troubles, the failure to take out the 3 % ten year UST level in convincing fashion has temporary quashed momentum.
Oil Markets

After Brent Crude printed its highest price since 2014, prices turned lower after the market was caught off guard and completely surprised by the comments from President Trump suggesting that the US and France could reach an agreement on the Iran nuclear deal. However, with an overall shrinking appetite for risk assets in the wake of the US equity sell-off, that too has offered little support for prices either. Nevertheless, when compounded by the API reporting a surprise build in crude, traders are a bit flustered by the shifting landscape.

Without a doubt, back peddling and unpredictability continue to frame the Donald Trump presidency; but we should expect Iran nuclear significance to remain front and centre.

In the meantime, traders will turn to the immediate task, Crude inventories and the US GDP, which could have a notable influence on energy prices.

The market remains extraordinarily long Oil, but there has been a lot of fresh money chasing it higher. The danger is being caught in a crowded trade scenario especially for those investors that are buying near the top, and we may have seen a bit of that influence in play overnight.

However, unlike trading on real fundamental supply and demand dynamics, geopolitical uncertainty takes volatility to an entirely new level due to headline risk.

Gold Prices

Gold prices have rebounded off the weekly lows as the US dollar upward momentum has temporarily ceded and the downward momentum building in equity markets has perked up some haven appeal. As s traders put geopolitical and trade risk in the rear-view mirror for the time being how the dollar flourishes and wilts will be the primary driver of near-term gold sentiment,. When the equity walls come crumbling down, gold offers the best support.
Currency Markets

The Euro

Is the Draghi painting the Euro into a corner or is the Euro painting Draghi into the corner. Such is the decision traders are facing heading into the ECB announcement. Certainly, Draghi cannot continue to talk the Euro down with the US Treasury forever vigilant on currency manipulation With everyone rushing to be short EURUSD into the statement, it opens the potential for a nasty whipsaw on the slightest of a hawkish lean.

Japanese Yen

Not a lot of dynamics to review. The USDJPY was tracking US yields, and on the failure to clear, the 3 % hurdle convincingly the USDJPY came off. The equity market purge did not help risk sentiment which asl also played on the improving JPY hand.

The Malaysian Ringgit

While ten year US yields failed to gain traction above 3 %, the US equity market sell-off will dent global risk sentiment making the ASEAN basket of currencies less attractive.

While the regional equity sentiment was showing signs of tentatively stabilising as market chatter has increased about a possible RRR cut in China, the overnight sell-off in both US industrials and tech sectors should weigh negatively in today’s session.

Nevertheless, investors continue to pair back MYR currency exposure as locals are turning increasingly risk-averse thinking the election results could be a lot tighter than initially predicted.

Also, with OIL prices coming of weekly highs, the Ringgit will find little support in that light.