The Beat Goes on

Most asset classes have recouped their  Trump inspired shake out, but this could be little more than markets coming up for air, short covering extreme positions along with dealers digging in for the long haul as, by historical accounts, this Special Counsel’ investigation is likely to be an agonisingly long process of discovery. Predictably, this notion has tempered the markets animated response to the Trump inspired panic seen Wednesday. However given the heightened level of uncertainty, I suspect traders will remain in a kind of Investor Purgatory where risk aversion dominates and fear mounts that the investigation could open up a whole new can of worms which will do little more than compound the markets current panic syndrome.

This politically charged risk averse market took a further hit when Brazil spiralled into turmoil after bribery allegations involving current President Michel Temer surfaced. While I view this as a Brazil-centric affair,  there has been a higher level of chatter and debate about the MXN peso role in this incident and to what extent investors could or should use it to hedge LATAM exposure. During the initial panic, USDMXN traded to 19.20 when the BRL panic was raging but has since recovered. Jury is out on this one 

Overall USDJPY and EURUSD continue to dominate the highlight reels where volumes are running well above average on both pairs

US Dollar

Dealers mustered up the courage to rally the dollar when the street started sharing a dated CSPAN videos( May 3)  of a  Comey testimony. When under oath he suggests there was no inappropriate coverup made by the president. But the markets were quick to accept the video was dated and that the Attorney General has already viewed it before nominating the special counsel. Nonetheless,  it’s another ball in the air for traders to juggle deciphering an outcome that quite frankly is little more than a guessing game.

The US  remains completely engulfed in the Trump Comey storyline, and   the  USD will continue to be unalluring until further clarity is forthcoming on the special investigation

Japanese Yen

The market is stabilising on USDJPY which would appear contradictory for those positioned for the world’s haven currency to further strengthen on the Trump noise. The small reprieve was likely due to the murmur around Japanese equities that bounced on a positive domestic  GDP print and some profit taking.  While there will continue to be some scope of influence from both US and Japan economic data, it’s more likely dollar rallies will be capped until the US political storm clouds dissipate and some semblance of risk re- appears

Euro

Asset rotation into Europe should continue to provide support while US political decay plays into the Euro as a haven poxy We should expect lots of choppiness as the risk complex will likely bounce from stable to unsettle on any given day. But the key for and additional push higher in the Euro will require a hawkish shift in  ECB forward guidance.The latest ECB minutes failed to  accomplish that task 

Australian dollar

With  US political factors weighing on risk sentiment, it’s unlikely dealer will muster up the courage to make any serious attempt higher in this risk off environment.  The market appears to be  viewing the Aussie dollar as a flat out commodity play, but dealers will continue to monitor  the Fed June interest rate hike probabilities as the current market turmoil will not go unnoticed by Dr Yellen and company

Asia FX

Far too much uncertainty in the short term market which will see dealers either keeping inventory light or head the sidelines awaiting the next catalyst. Risk sentiment is simply not there to support EM, but if the US political angst morphs into a US-centric focus, then the opportunistic flow will gradually return.Currently,   the markets remain in risk-averse mode but are acting quite orderly.