FX at Standstill - Risk Rebounds

Market Drivers March 28, 2017
FX treads water
Aussie weakens to 7600
Nikkei 1.14% Dax 0.61%
Oil $48/bbl
Gold $1252/oz.

Europe and Asia:
No Data

North America:
USD Trade Goods 8:30
USD Consumer Confidence 10:00

After yesterday’s sharp risk-off selloff currency markets settled down today and rebounded somewhat, but price action has been tepid at best as the absence of news flow and data flow made for a very quiet low range trading in both Asia and early Europe.

Aussie was the weakest performer as commodity prices continued to slide with the pair dropping below the 7600 figure for the first time since March 15th. It managed to find bids underneath the figure and stabilized at the 7600 level. The unit has been a laggard for more than a week as commodity prices, especially copper, have slid lower and any further deterioration in pricing could push the pair towards a test of the key 7500 support.

It’s difficult to tell if the declines in copper are simply seasonal adjustments in supply and demand equilibrium or a more worrisome signal of a slowdown in global demand. Copper is known as “Dr. Copper” for its sensitivity to economic activity, so the fact that prices have been weakening for the past month should be a note of concern for anyone long the risk trade.

Elsewhere cable made another run for the 1.2600 level but failed just a few pips shy of the barrier. Tomorrow PM May is expected to trigger Article 50 formally notifying EU that it will exit from the union but with the market now fully adjusted to the news the reaction is expected to be minimal. In the meantime, cable could be capped to the upside by end of month EURGBP flows.

Today the calendar in North America is very subdued with Consumer Confidence the only release of note. The Fed calendar is very busy with 4 Fed speakers on the docket today including Chairwoman Yellen. However, it’s unlikely that any of the speakers will make any market moving comments as most of them have simply been reiterating their modestly hawkish policy stance for weeks. The key to today will once again be equities. In pre-market trade risk sentiment is back with futures pointing to a higher open, but if the rally quickly fades it’s likely to spill over into FX and drag USD/JPY lower once again. The pair has recovered from yesterday’s selloff but remains contained at the 110.80 level. Any further weakness in equities could send it below 110.50 and allow shorts to press for another run at the key 110.00 support level.