The lack of conviction and some questionable US economic data had all but stalled the US dollar rally against most G-10. The exception being USDJPY where the election tail risk premium is being priced out and speculators are adding long positions anticipating a decisive Abe victory on Sunday.
In reality, the latest US dollar rally was always suspect at best, based solely on optimism surrounding the possibility of Taylor’s Fed Chair appointment and a slightly more hawkish tone from the Fed. The former is a guess at best and the latter, well that’s a guessing game too.
The focus should be on the US Senate face-off over two critical pieces of legislation: budget resolution vote and tax reform. With lots of demands yet to be ironed out on both sides of the floor, another cloud of uncertainty forms over the Foggy Bottom. But Treasury Secretary Steven Mnuchin was in no mood to mince words when he told Congress to cut taxes or risk a stock market crash. Dollar sentiment will remain very guarded until these key issues are resolved.
You know the old saying, where there’s doubt stay out. And according to overnight price action traders did precisely that as the greenback spent the better part of the NY session plodding aimlessly within confined ranges.
Little to be gleaned from US economic data overnight as both the Beige Book and housing data prints distort due to the hurricane effect. There's certainly a lot of noise in the market but the main distraction remains who will be the next Fed chair.
The Euro
Traders have lightened EUR positioning ahead of the EU leaders’ summit where Brexit is top of the agenda. Political noise is difficult to navigate and usually best to let the dust settle before re-engaging. But the reality is euro traders are waiting for next week’s European Central Bank meeting for direction, and the current ranges will likely hold until then.
Japanese Yen
Whether its a case of the USDJPY playing catch up to the Nikkei, election risk premiums were unwinding or funds buying on expectation of a convincing Abe victory, all paths lead to the same destination. Not too unexpectedly were testing the 113 handle as we turn the corner towards week's end and Sunday’s Japanese elections.
The British Pound
Another tough London session for sterling markets, however, Cable was able to drag itself off the mat as traders reduce risk ahead of the EU Summit on Brexit.
Brexit concerns are paramount as even yesterday boisterous UK jobs failed to get an initial rise out of the markets.
At times positioning looks arbitrary at best, purely based on headline risk. As a result, the pound is becoming tortuous and messy to trade.
New Zealand Dollar
Not to belabor the issue at hand but New Zealand First, the kingmaker-party post-election should announce its coalition decision today. Weaker milk auctions yesterday were more or less ignored and there an air market optimism in early NZD trade.
Australian Dollar
Awaiting local jobs report and the China data dump before updating views.
FX Asia
Besides the apparent Fed Chair debate, local markets are focusing on local central bank decisions and the accompanying musings.
Bank of Indonesia: expected to hold rates steady at 4.25 % but markets leaning for another cut in 2018
Bank of Korea: expected to remain on hold but the voting splits (dissidents) are of interest to the markets.The BoK prefers running behind the rate curve, and this should be the case this month. But in reality, it makes little sense turning the rate hike screws on given the geopolitical landscape.