Dealers have spent the last 24 hours digesting Friday’s CPI fallout while keeping an eye on geopolitical risk amidst the deluge of Fed chair speculative headlines. As for the dollar, there was nothing earth-shattering within these idiosyncratic storylines usurping any broader USD trend. All in all, it made for a somewhat sleepy Monday in G-10
It’s not wise getting too comfortable though as tranquil Mondays tend to foreshadow a climatic tipping point and today’s substantial economic diary could prove to be a real test of investor sentiment.
Also, it’s worth keeping an eye on the expanding laundry list of geopolitical flashpoints. We’re not only dealing with issues in the Korea Peninsula, but now an unpopular shooting war between Iraqi forces and the Peshmerga is full blown. With Turkey-US relations souring, and as the world is still trying to figure out what to do with ISIS, the Middle East looks like a powder keg waiting to explode.
Fed Chair Debate
There’s a growing buzz surrounding Stanford’s Taylor who is suggested to be in Trump’s good books, while the lack of impressive academic credential seems to be weighing negatively for former frontrunner Kevin Warsh. Also, Yellen is rumoured to be meeting with the President this week, and she is expected to be the last primary candidate interviewed for the job, suggesting that decision time is near.
Euro
Traders continue to probe the EUR downside resolve after last weeks dovish Draghi comments and a slight rise in EU political risk in the wake of the surprising Austrian elections. The EUR was primarily offered against the crosses with EURJPY looking susceptible to the bid tone on USDJPY.
Australian Dollar
The AUD was the G-10 worst performer overnight despite the common signals suggesting otherwise. Metals ratcheted higher on very optimistic growth forecasts coming out of the Communist Party Summit. Also, yesterday’s China data supported regional risk, so the overnight AUD sell-off is a bit surprising. However, the reversals are likely more a case of traders taking profit ahead of the RBA Minutes based on their well-known dovish guidance
The British Pound
Brexit headlines continue to batter the pound but with the UK CPI report for September; and the testimonies of three key BoE members (Carney and for the first time, members Ramsden and Tenreyro) on tap, sterling traders will be buckling in for a bumpy ride. UK inflation is sitting just shy of 3%, and if September's forecast to touch the elevated 3 % level occurs, it will exert immense pressure on the BoE to begin the tightening cycle and should play positively for the pound. Keep in mind, Carney has been extraordinarily Hawkish of late so his testimonies will also be a central focus for traders this afternoon.
Japanese Yen
The anticipated wave of dollar selling in favor of the yen after last Friday’s weak CPI failed to gain much traction below 111.75, and then USD bounced to 112.20 on Bloomberg headlines reiterating that Taylor is in Tump's good books. There remains an air of apprehension to sell the dollar this week as traders are looking over their shoulder as hawkish Fed Chair headlines unfold.
Little to report ahead of the election this coming Sunday, where Abe continues to look strong. A substantial outcome for Abe should, in turn, mean a weaker JPY.
Chinese Yuan
Chinese data was robust but had a minor impact on currency markets and the yuan. Unquestionably, the market is sitting tight while keeping eyes peeled and ears to the ground for any groundbreaking policy shift to come out of the Chinese Communist Party Congress.