While the markets aggressive risk-off reverberation may well be exaggerated, the fact is dealers never actually believed the Trump impeachment chatter until yesterday when the Comey notes came to light. There is a very high level of uncertainty oozing from the markets but one thing that is crystal clear, investors now believe that at a minimum the rising US political entropy will jeopardise the White House policy agenda, and at the extreme, a Trump impeachment will lead to a flat out market collapse.
What initially started as a risk off narrative turned into a full blow US dollar -off a move that has been intense and unforgiving. But despite the magnitude of the dollar sell-off overnight, we may only be scratching the surface if this storyline has legs.
US political risk will continue to drive sentiment near term which will continue to pressure S&P 500 Futures and regional bourses while the traditional havens, Yen, US Treasuries and Gold will provide an umbrella for investors as dark and ominous political thunderheads gather.
Besides the political headline risk, the market is becoming less sure about a June Fed interest rate hike as the pandemonium in Washington and sagging equity markets will not go unnoticed by Dr Yellen and company. It’s a toxic brew for dollar bulls who are getting steamrolled from every possible angle.
Completely engulfed in the Trump Comey story but the key for extending the short USD trade will be how loyal Republican legislators remain to Trump, or will they look to abandon what appears to be a rudderless ship.
Another solid employment number this morning, and should be supportive but with external US political factors weighing on risk sentiment, it’s unlikely dealers will muster up the courage to make any serious attempt near .7475 level.
Asset rotation into Europe should continue to provide support while US political decay plays into the Euro as a haven poxy. Any shift in ECB guidance will be a bonus for the EURO bulls
Asia FX
Very deep rooted risk off sentiment with the only bright spot a bounce on oil on the back of inventory decline.Far too much uncertainty in the short term market which will see dealers either keeping inventory light or on the sidelines awaiting the next catalyst.