Trade the Move or Fade the Move.
Trading conditions this week will be slippery and shifty throughout the G-10 complex. The calendar is full of high-risk events making for a treacherous path to navigate in the lead up the monumental November 8 US election. With the central banks taking centre stage (RBA, BOJ, BOE and Fed) and given the recent global bond market sell-off, and yield curve steepening, traders will be focusing on comments that suggest central bankers will be less aggressive about boosting monetary stimulus going forward. But let’s not forget the week concludes with the Granddaddy of them all, Non-Farm Payroll, which will offer its usual share of US dollar shenanigans.
US Election Risk
The FBI announcement that the agency is reviewing the Clinton email investigation hit the forex markets like a bolt from the blue on Friday.
US GDP EFFECT
Real GDP grew 2.9% in Q3, faster than Bloomberg’s of consensus 2.6%. However, the superlative headline was slightly tarnished by consumption, which came in weaker at 2.1% vs. 2.6% expectations. Regardless of the consumer blemish, the headline supports the Fed’s view that economic activity is on track. In fact, without the election looming, this print is supportive enough for the Fed to hike rates this week.
Australian Dollar
The Reserve Bank of Australia is on tap tomorrow, and with expectations running very low for any policy action, traders will be primarily focused on what forward guidance will be on offer from Dr Lowe. Traders will look for guidance on both inflation, and the latest tepid employment data suggesting a dovish lean from the RBA, but my sense is the RBA will continue to view rates as accommodative and see little to be gained at this stage via a rate cut.
Japanese Yen
After tracking USD bond yields higher most of the last week, USDJPY sold off Friday after risk sentiment collapsed in the wake another purported Clinton e-mail scandal. The move illustrates just how weak risk sentiment is to any negative news out of the Clinton camp, and how underpriced the market is for a Trump victory.
Chinese Yuan
Friday fix was a bit lower than expected and traders concluded that the new line in the sand is 6.80 and the Yuan depreciation came to a temporary halt as traders took profit. But there remains the sticky issue of Capital outflows, which have accelerated on the back of the recent currency declines resulting in tighter interbank liquidity.
Malaysian Ringgit
Last week saw how inclined regional trades were to pursue USD Asia higher as the US 10Y yields breached the 1.85% barrier with little ease as traders guard against a liquidation of regional assets in the face of higher us bond yield. The nervous traded the move, but the savvy faded the move making for some exciting action in the region. Caution still prevails as both political and policy risk remains heightened in Asia and the US, so the waters should be tricky to navigate this week.
