Trader Talk

USDX: 92.60

USDX might see more direction and momentum in the US session this evening as we have FOMC speaker Brainard talking in New York and possibility of Fed outlook or hints regarding the Feds balance sheet will move the USD.

The USD sold off initially on Friday’s jobs report but then ground out a solid recovery in the US dealing session to end the week almost unchanged.

Monday did not see a large trading range, as expected with the US bank holiday yesterday.

USD JPY: 109.70

USDJPY was wild on Friday, but it wasn’t until late in the Asian session on Monday that we had a drive lower caused by more headlines when South Korea news agency reported that N Korea were possibly about to launch yet another Intercontinental Ballistic missile.

USDJPY reacted swiftly when this news reached the Newswires and USDJPY moved down from 109.80 to lows of the day of 109.35.

USDJPY is certainly skewed to the downside with the North Korean tension not getting any further away in trader’s minds, but I feel that more likely FOMC speakers tonight and tomorrow will move this pair back around the 110 handle.

EUR USD: 1.1895

Euro traded in thin ranges to start this week, seeing a movement of about 20 pips either side of 1.1880.

In the short-term though, the EUR story may continue to hold tighter ranges as markets await the key ECB announcements on Thursday, but volatility was high on Friday as a leaked story of the ECB delaying the QE unwinding announcement was out in the markets.

That makes the SHORT EURUSD and EURJPY trade in play and interesting this week.

For that trade to work we need the ECB to disappoint with the timing of their QE unwind announcement.

GBP USD: 1.2930

The Sterling drifted lower on Monday as the Construction PMI data was a miss, and the Brexit negotiations drag on.

More PMI data tonight after the London open certainly has more potential to drag GBPUSD towards 1.2900 and then, as always, the FOMC speakers and implied USD volatility will drive this pair.

With North Korea testing missiles and testing the patience of the US, there is a consistent flow into USD this week which won’t help the GBPUSD levels. As always, that story is dynamic, so be nimble.

AUD USD: 0.7945

AUDUSD has had a wild week, firstly moving just shy of 80c again, then the USD rally capitulated AUDUSD back down to 7885. Then on Friday’s data release we sailed back up to 7990.

The Aussie is ripe with volatility again this week, dragged slightly lower on Monday by risk off flow for the North Korean headlines.

The Aussie is at interesting levels as we have RBA likely to hold Australia’s cash rate later today in the Asian session, as the key event risk today. That could be the excuse that the market uses to unload some Long AUDUSD positions, if the RBA statement talks down the AUD.

I love the Aussie at these levels to Short back towards the 7880 price area, but also be aware that RBA Gov. Lowe speaks on Tuesday night and if he chooses to talk about the Aussie high levels affecting Australia’s post-Mining recovery story, the 7900 handle may break down.

NZD USD: 0.7160

The Kiwi seems capped under 7175 after a quiet Monday trading session with Trader’s still reeling from RBNZ Wheeler’s comments last week pushing the Kiwi lower.

RBNZ Wheeler talked down the Kiwi price level last week, seeing swift Offers down to 7130 in a big slide, and there is no event risk to help the NZD this week.

NZDUSD will take the lead form US yields and USD sentiment and likely hover somewhere around 7150 in the near-term.

USD CAD: 1.2410

Dollar-CAD has understandably taken a breather as we head into Wednesday’s BOC rate decision.

The Bank Of Canada is not tipped to move on rates this meeting, but they are likely to hike this quarter, hence the divergence between the stalling US Fed and the fast moving BOC is in full swing, playing out in lower lows for USDCAD.

1.2400 may form a base on USDCAD but the downside momentum is enormous as this pair has slid from a long way as the US fed tightening cycle constantly gets doubters on the back of data points being hot & cold for the US.

VIX: 10.13

The volatility index unchanged, as US Bank holidays on Monday.

The North Korean tension don’t seem to be simmering down which is likely to hurt Stocks and push the VIX much higher.

The markets seem to be building for a spike higher in VIX and correction in stocks will follow. Just a matter of When.

GOLD: $1,334

Gold traded sharply higher on the open of trade this week, getting to highs around 13439 before settling back.

Large moves in Gold seem to be the norm in this market so I maintain my view that $1357 or $14366 may win the day in the near-term, fuelled by growing tensions in the Korean conflict.

I am mindful of the idea of some diplomatic headlines form the US helping pull Gold back towards 1320, but still favour a wider target on the upside from here.

OIL (WTI): $47.45

Oil is holding firmly the $47.50 price area as more confirmation overnight from Iran oil minister regarding the OPEC production cut compliance.

That is supportive to the Oil price and with OPEC out cuts to continue to the year-end, we should see a grind towards $48/$50 as I have been saying for some time.

Risk off dangers also skew the Oil price to the upside and thus $48.50 seems very likely this week as the dominant price level.

Macro Themes in Play

• North Korean testing patience again and dragging risk sentiment lower
• Gold is sharply higher on risk off & holding gains around 1334.
• Holding patterns for EUR as ECB this Thursday is crucial for EUR Sentiment