Trader Talk Tuesday

What Happened on Monday > Top 3?

• Hawkish Fed speaker Dudley helps the USD recover
• EUR, AUD, GBP all softer against the USD
• GOLD eases off highs but holds $1280

Outlook

• Volatility slumped 20% to 12.33
• Markets are still nervous about the North Korean issue
• According to CME, markets pricing a 47% chance of December rate hike

Data & Event Risk Today?

• (AUD) RBA Policy meeting minutes – 11.30am Sydney
• (GBP) CPI Data for the UK – 6.30pm Sydney
• (USD) Retail Sales for US – 10.30pm Sydney

USDX: 93.30

The USD gained ground on Monday led by Hawkish commentary from Fed’s Dudley.

Coming off lows around 92.80 late last week, the USDX recovered steadily back firmly above the familiar 93 level as Dudley spoke of inflation targets and a pathway to a December rate hike.

USDJPY: 109.60

USDJPY drove higher for most of the Asian & London dealing sessions yesterday, even after a bumper Japan trade report card was released.

USDJPY bouncing back up a little yesterday can be attributed directly to a lack of risk-off headlines regarding the North Korean crisis.

Relatively hawkish comments from Fed’s Dudley was also a catalyst for US yields driving higher, dragging USDJPY back above 109.50. I still favour the downside risk aversion on this pair to resume this week and we have US Retail sales tonight on the risk calendar.

EURUSD: 1.1775

Euro slid back firmly under the 1.1800 handle in Monday’s dealing sessions fuelled by spread difference in Bund yields and US Treasuries. The spread on 2-years widened by 3 basis points dragging EURUSD to a daily low around 1.1775.

The key commentary and risk for downside for the Euro is out on Thursday, being the ECB Monetary Policy Meeting Accounts.

GBPUSD: 1.2956

Sterling gave up the 1.3000 handle yesterday as the major FX pairs all drifted lower against the Greenback.

The UK CPI data hits just after the London open tonight, so look for GBPUSD to move higher.

I am looking for a run towards 1.3100 and the sterling is certainly back in the Buy zone after yesterdays moves.

AUDUSD: 0.7850

The Aussie dollar sees RBA meeting minutes hit the news wires on the Asian open today.

As per yesterday’s comments: “I am looking to sell after this blip higher for a risk off move to follow back to 7850.”

I have revised targets lower for AUDUSD as the risk assets have all had a rough few trading days with the geopolitical rumblings in the background, but don’t underestimate the ability of the RBA minutes to pull AUD lower towards 7800.

NZDUSD: 0.7285

NZDUSD was bouncy last week and came back from 7320 giving up Friday’s gains as the hawkish commentary from Fed’s Dudley helped the USD.

7285 is an interesting level but 7250 looks like a key level that will win out the day this week depending on the risk appetite of traders in FX.

I maintain short positioning on this pair looking for a move lower on the back of Stronger USD data or risk off headlines.

USDCAD: 1.2725

USDCAD was a lovely BUY trade last week and looks likely to continue its recovery this week.

The end of this coming week sees CPI data for Canada, but a lot can happen before that hits the news wires.

Don’t underestimate the ability for USDCAD to recover back towards 1.2800.

VIX: 12.33

The Fear index was off by 20% yesterday moving back towards 12 as Stocks took the lack of North Korean headlines as another signal to rally. Again.

I expect the Volatility index to fire up again and head north back towards 15 in the week ahead.

GOLD: $1,281.50

Gold pulled back with profit taking on Monday coupled with the USD slight comeback.

Gold came off last week’s highs around 1291 to slip to 1279 before consolidating in the US session.

I have re-entered LONG positions here looking for moves towards 1300 on geopolitical tensions, with a renewed entry now at 1280.

Oil (WTI): $47.55

Oil battled with the $50 handle quite hard, so I like to favour a continued pullback.

Last week the OPEC compliance (Complying with planned production cuts) dropped down to 75% so that meant that Oil had a pullback to 48, and now we see 47.50 back.

The $46/$48 range should maintain for now.

Macro Themes in Play

• Fed’s Dudley helps the USD recover
• Markets still cautious about North Korea’s next move
• Markets still pricing in a 47% chance of December rate hike, but carefully watching Geopolitics & USD data points