No shortage of drivers leading to very aggressive price action overnight with US traders eager to re-engage after the holiday break.
Oil prices tanked with WTI plummeting from the $47 level to $45. However, we did see a significant bounce at the close with API data coming in a bit better than anticipated. No specific catalyst for the aggressive move lower although some wires reporting a reluctance from Russia to agree to deeper production cuts.So likely down to traders eager to re-engage post-holiday views with stop losses likely feeding the frenzy on the break of $46.level.
The FOMC minutes were perceived hawkish with US yields moving higher and USDJPY following suit. The Fed’s verbal gymnastics surrounding inflation was rather pragmatic, attributing the inflationary soft patch on idiosyncratic factors. They also made a note of systemic financial risk from elevated asset prices which supports the case for a rate hike without data dependence. But with no consensus on the balance sheet runoff timing, investors' USD appetite dwindled a touch heading into the Asia Trade.
However, the Feds acknowledgement to elevated asset prices will likely keep the dollar bears at bay as this view provides more fodder to the rate hike narrative. But definitely, the minutes offer a challenging view as the market remains tentative in either direction for the buck.
I'm anticipating a reduction in short dollar positions after the hawkish FOMC minutes and as traders flatten out heading into Friday’s NFP. No risk reward on coin flips as there will be plenty of opportunities to express views post data.
Euro
ECB member Coeuré’s dovish comments have been weighing on investors sentiment as the EUR struggles to gain any traction above 1.1350. Coeuré’s lean does question the current ECB hawkish narrative the markets have been running with, but he’s likely doing little more than tapping the market's brakes after its overzealous read on Draghi’s Sintra comments when EU equities cratered.
Canadian Dollar
CAD predictably took its lumps, as oil prices came off in early NY trade and continued to wobble at the beginning of Asia trading, above 1.2960 level as the US dollar remains firm in early trade. But with the BoC’s July meeting next week and Governor Poloz confirming his hawkish view entering the official blackout (no comment) period which begins on the week before the formal policy announcement, the loonie shouldn’t run too far off course. But the oil price story line and position squaring remains the wild card factor in the absence of central bank guidance.
Australian Dollar
Weaker oil and a slightly stronger USD in early Asia has dented Aussie sentiment.However, it remains tentatively bid on dips despite the RBA failing to live up to the markets hawkish lean. While commodity currencies lead by USDCAD staying in favor and providing support for the Aussie, the shifting oil price narrative does raise concerns.
Japanese Yen
The USDJPY is entirely correlated to moves on US fixed income but worth noting 30-year JGB’s are trading at the highest level since late February.