Difficult FX Trading Conditions

The dollar is on a slightly better footing in early trade as the as North Korea( NK) headline risk has cooled a bit from last week’s fevered pitch. With little lack of geopolitical headline escalation over the weekend, traders are nimbly unwinding some NK over hedges in early trade but are still on headline watch.

The weekend headlines have centred on Hurrican Irma as the world’s thoughts and prayers are for the residenters of Florida who are taking a battering from this beast.

Most certainly the swath of devastation both Harvey and Irma have left in their wake will give the Feds cause to pause, however, the rebuilding and recovery will be a massive boost to US growth. Chalk up another issue in the ever expanding Fed Conundrum check list.

Oil prices spilt lower Friday as Florida is the fourth biggest OIL consumer and demand will be muted over the short term

Bloomberg reported that the PBOC would remove reserve requirements on Yuan forwards. Scraping this requirement put in place in October 2015 to curb FX speculation suggests a more liberalised approach to Yuan trading as the PBOC removes some of the defensive mechanism implemented to reduce capital outflow

All in all holding any long term currency position these days remains challenging.

The Chinese Yuan

There was an extraordinary move on USDCNH Friday when the pair dropped from 6.4950to 6.45 level in the blink of an eye. Outside of NK headline risk, the CNH was the real story of last week as on Friday there was record intraday appreciation from the midpoint (smashing the record set on Monday). Other than the weaker USD and lower for longer Fed narrative, there may be some repatriation flows occurring back to the mainland along with the CNH gaining some haven appeal all adding to the bullish sentiment. Although the market is trading above 6.50 USDCNH this morning pre fix, traders will be watching for any push back for the Pboc on the currency strength However the recent currency moves indicate investors optimistic near to view on all things China

Japanese Yen

Led by a collapse in US yields, and Usd Asia was selling off UsdJpy y gave way through 108.00. Nikkei, the worst performer of the Asian indices adding to the woes. With little sabre rattling over North Korean foundation day this weekend, USDJPY has recovered above 108.00, but trader remains very cautious.

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