The master of central bank voodoo was at it again. Mario Draghi did cast a pale shadow over the euro strength, but the level of intervention rhetoric was so mild it did not distract the euro bulls from adding on more euro risk.
The EUR bulls are anticipating bullish near term fundamentals whilst Draghi smoothed the path to reducing and then ending the asset purchase program.
However, the labouring USD played a significant role in last nights euro rally after a higher than expected U.S. initial jobless claims sent the greenback tumbling into the ECB meeting.
As for the USD part of the market geometry, traders are concerned that the impact from Hurricane Harvey is causing data distortions and these data skews may cause the Fed to sit on their hands for the rest of 2017.
Investors have renewed their interest on the US political overhang as the political landscape continues to weigh heavily on the dollar. Specifically, the long and winding and no less bumpy road to tax reform look more of a pipe dream now than ever. Also, uncertainty reigns over Yellen’s replacement which is adding another unwanted layer of confusion to an already politically muddled landscape.
The Fed’s Dudley has just finished delivering an economic outlook speech to the Money Marketeers of New York University. His comments are very much in line with his previous statements where he has argued for further tightening in addition to shrinking the balance sheet. Not much reaction off the banter bat as traders will be looking to trim not add risk heading into the weekend, especially long dollar risk.
EURO
US data didn’t do the wobbly dollar any favours overnight, and with no real push back on euro strength from Super Mario, the overnight session has been more or less a running of the euro bulls. Look for the weaker dollar narrative to lead the way for a possible move higher on the EUR.
Japanese Yen
While there was little cause to be long USD/JPY above 109 yesterday, we could be in for some absorbing price action soon. Besides the usual position squaring effect into weeks end, there was lots of chatter on the street about the fact central bank pricing can’t get any more dovish. The 108.00 level may shape up to be a considerable battle ground between the dollar bulls and the short term risk aversion flows. But the long trade is fraught with danger as Saturday feared missile launch could become a reality leading to a very messy Monday open.
Australian Dollar
The main reason the Aussie is trending towards a two year high is the market continues to reprice the dovish Fed narrative with the December rate hike probabilities running near 30 % down from 37% yesterday. Weaker dollar and increasing investor risk appetite screams long Aussie.