Asia market wrap
Markets remain cautious ahead of Humphrey Hawkins and the FOMC minutes which has notably weighed on risk assets in Asia today as investors head for the sidelines ahead of a deluge of Fed policy signaling this week.
But for those looking for a more profound than 25bp rate cut have all but given up hope.
Hong Kong Dollar
USD/HKD gapped up to 7.81+from 7.8060 right after Hong Kong leader Carrie Lam said the extradition bill is dead. But With equities underperforming post-US payrolls and a Hong Kong IPO reportedly oversubscribed by less than the market expected, more liquidity is filtering back into the HK market, and USD/HKD should continue correcting higher.
Korea Won
USD/KRW is trading in a tight range but remains bid amid tensions with Japan and worries over the South Korean economy itself. The bond curve is very offered today with talks of less Japanese interest in local bonds.
European Open
The Pound
GBP/USD has shimmied down to the 1.2500-1.2480 support zone, ahead of the year's low of 1.2440 - which should set up a critical test for the sentiment. However, the options market refuses to price any relevant Brexit fail into October 31, which if you were reading headlines, looks like it is a lock. But If a 'no-deal' Brexit starts to get significantly factored in, there will the be a shift will be to 1.2000 in scope.
The Euro
G-10 traders had shifted into USD buy on dip mode in the wake US employment data on Friday. Given the recent ECB developments and the convincing break below 1.1250 last Friday, the EUR/USD sees the lion's share of the flow so far. But with no joy below 1.1200 traders have turned to wait and see mode ahead of the FOMC minutes as EUR/USD options have a deadly quiet start to the week.
But With EUR/USD short positioning well-trimmed in the past few weeks in anticipation of a more aggressive rate cut cycle from the Fed, with the USD continues to hold onto the bulk of its post NFP gains, but EUR/USD looks particularly vulnerable.
While US data surprises positively, European data continues to fail, adding to the downbeat EURO tone.
Oil Markets
On top of the dueling narrative between Iran tension and global demand concerns keeping traders guessing, Fed policy uncertainty is also weighing on oil market sentiment if today's price action in Asia is any indication as policy confusion was feeding into the oil markets conundrum.
The weaker global economic outlook is keeping oil prices under downward pressure, but tensions in the Middle East are enhancing awareness to possible supply risk and should keep a floor under oil in the medium term. But the fact that Iran tension is not boosting prices more considerably continues to emphasize the markets singularly focused nature on the demand side of the equation.
Under these conditions, It is challenging to hold a robustly bullish conviction when the markets continue to overplay lousy economic news into the demand side of the equation.