It was a predictable snoozefest in FX overnight as global holiday sessions crimped activity. And adding to the void, there was scant data during European hours which severely nipped action as traders had few if any fundamental guideposts.
But the markets interlude included the usual holiday- liquidity induced mystery move as the dollar went bid at the NY open. But the step was humble and little more than an attempt to trigger some stops in low liquidity market conditions. But all near-term support levels held and the move and quickly retracted as there was no news to support the quickstep sell-off. Chalk it up to the ghosts of presidents past.
Currency markets have remained relatively muted with few if any headlines to sink one’s teeth into but as the markets pivot to Fed speak and the FOMC minutes this week, “deficit mania” is sounding a few decibels lower this morning. But none the less, ongoing concerns about swelling deficit’s and the Feds sequence of interest rate normalization should be the markets key focus this week and the primary drivers of near-term volatility.
Oil Markets
Oil prices have started the week on a positive note. With risk aversion abating, equity markets have remained guardedly positive. Also, an escalation of middle east tensions on the back of Israeli Prime Minister Benjamin Netanyahu beating the war drums by suggesting that Israel could act against Iran alone has nudged prices higher. Predictably this warmongering has put the region on a state of readiness fearing a head to head incident and boosted oil prices due to the fear of sizable supply disruptions. Of course, when Israel comes into the equation it could spark contagion across a region.
Also, convincing signals from OPEC and their partners to extend production cuts continues to resonate with investors.
Gold Markets
Gold prices slid lower overnight on a drop in volatility and a slightly stronger dollar. Selling pressure emerged after USD speculative buyers emerged along with some position short covering ahead of the plethora of critical Fed speak and of course the FOMC minutes. But given the late-January Fed meeting was primarily interpreted as hawkish; the bar is high for the minutes to sound an even more hawkish note, but they will still attract the lions share of attention.
Given that the sun seldom shines on a capital hill along with escalating middle east tension, on the first sign of a dollar downdraft gold will ratchet higher.
G-10
The Japanese Yen
Markets are focusing on Friday’s crucial Japan CPI print, and with all the recent chatter about the BoJ extending YCC in perpetuity given the stronger yen, short-term traders are paring back bearish dollar bets. And with a relative sense of calm in overall volatility, dollar bears are taking an interlude in holiday thinned-trading conditions
The Euro
Very little buying interest yesterday after Friday’s sell-off, so, given the lack of demand, the euro could fall to a low of 1.23 on even a minor, unexpected hiccup of news flow given thin liquidity conditions. But dips should look attractive for long-term players.
The Malaysian Ringgit
Very quiet trading session to start the week with local trader biding time until the FOMC minutes release. In the meantime, the broader USD sentiment will dictate the pace of play for regional currencies and in particular the USD/JPY which is moving towards 107, which is mildly negative for the MYR.
On a favorable note, oil prices remain robust on the escalation of middle east tension and production cut compliance among OPEC members which should provide support for the MYR.