After Oil Drama FX Settles Down

Oil spikes but off highs calming risks
Johnson and Junker to meet
Nikkei closed Dax -0.60%
UST 10Y 1.86%
Oil $59/bbl
Gold $1503/oz
BTCUSD $10,315

Europe and Asia:

CNY IP 4.4% vs. 5.2%

North America:

No Data

A wild open to the week's trade in global capital markets today as a weekend attack on Saudi oil facilities took 5% of the world production offline sparking a 20% gap open in oil and sending risk FX lower.

However, sentiment quickly stabilized after President Trump quickly reassured the markets that the US would tap the strategic oil reserve to satisfy any unmet demand and the US announcement was followed by comments from Russian oil minister Novak who also stated that there was plenty of oil in inventories to satisfy current global demand.

WTI, which gapped higher to more than $60/bbl receded off those levels by London open trading at $58.80 as sentiment stabilized. As we noted earlier, "The oil story won't get worse unless there is another attack. For now, the market will stay slightly elevated but with immediate supplies guaranteed the price will ease back to Friday's levels as the market will see this as a one-off event. Another drone attack, however, and all bets are off."

The price action in oil reflected the movement is risk FX with USDJPY gapping lower by more than 50 pips at the open but pair climbed off the lows and was trading at 107.85 by London open reflecting the shrug-off attitude of the market. Even the dismal Chinese Industrial Production data which came in at 4.4% versus 5.2% eyed did not phase the market much as traders remained optimistic that US trade negotiations would ease tensions going forward.

There is little on the economic calendar today and the FX action will likely take its cue from US equities. If US traders shrug off the events in the oil market and push stocks higher risk FX should respond in kind with USDJPY closing its gap open at the 108.00 level, but that's as far as the pair is likely to go as the dual tugs of war between US and China and US and Iran continue to dominate the macro landscape and although President Trump appears to be generally conciliatory as he tries to maintain a positive market environment to support his reelection, headline risks continue to lurk and markets will likely remain cautious for the time being.