Market Drivers May 10, 2017
USDJPY wobbles on Trump news
Comm dollars rebound
Nikkei -0.29% Dax 0.03%
Oil $46/bbl
Gold $1224/oz.
Europe and Asia:
No Data
North America:
No Data
There were no major economic news releases today across any of the three main trading sessions and currencies, therefore, remained in narrow trading ranges for most of the Asian and early European dealing. Last night's geo-political shocker out of the US however, did have an impact on USDJPY which was pressured lower for most of the overnight trade.
The sudden firing of FBI chief James Comey by President Trump created a big stir on the political front, but so far has had only a limited impact on the markets. USDJPY dropped from the 114.00 level to hit lows at 113.62 but held support there and rebounded a bit.
The market remains resolutely bullish USDJPY and continues to be in a "buy the dip" mentality, as FX traders continue to believe that US growth will pick up markedly in H2 of 2017 and the Fed will maintain its rate hike path. That scenario however, depends on a relatively calm geopolitical picture that would allow President Trump to focus on domestic issues and craft a tax reform legislation that the market is eagerly awaiting.
However, if yesterday's action is just the start of a massive constitutional confrontation with both Republicans and Democrats demanding an Independent Prosecutor on Russia collusion probe, than much of Mr. Trump political capital will be wasted on defending himself against accusations of malfeasance. It's difficult to see how any meaningful legislation can pass Congress under such conditions. Furthermore, the political rancor caused by these actions could have a negative impact on consumer sentiment and that would destroy any forecasts of 3% or better growth in the second half of this year.
In short, while markets remain placid and calm about the current chain of events, there is considerable risk that the Russia probe could uncover criminal activity in the White House which would trigger risk aversion flows back into yen, despite Governor Kuroda's best efforts to expand QE. For now, the assumption of the FX markets is that the primary driver of trade in USDJPY is economic growth. However, yesterday may be an early signal that the story has changed and that politics may be the dominant theme from this point on.
Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
USD/JPY flat-lines below 151.50 after soft Japanese CPI data
USD/JPY stays defensive below 151.50 after the release of a soft Japan's CPI report and mixed Industrial Production and Retail Sales data on Friday. Japanese verbal intervention also weighs on the pair amid the holiday-thinned conditions on Good Friday. US PCE inflation awaited.
AUD/USD buyers lack vigor above 0.6500 amid Good Friday trading lull
AUD/USD is trading listlessly above 0.6500 in the Asian session amid light trading on Good Friday. The Aussie pair shrugs off encouraging comments from China's FX regulator, as price action remains subdued ahead of the US PCE inflation data.
Gold flirts with record highs above $2,230, all eyes on US PCE data
Gold price flirts with record highs around $2,230 during the Asian session on Friday. The uptick of yellow metal is bolstered by the safe-haven flows amidst growing economic concerns and the prospect of interest rate cuts from the US Federal Reserve.
Optimism price could fall as nearly $90 million worth of OP tokens is due flood markets
Optimism volatility has shrunk in the ours leading to the network’s cliff unlock. It joins the likes of dYdX and Sui, which have similar events on their calendars. As token unlocks are often considered bearish catalysts, investors should brace for a reaction after the event.
Will they won’t they cut rates is the question of Q2?
There has been some significant push back from Fed and Bank of England members around the timing of rate cuts, and the Bank of Japan still haven’t physically intervened in the FX market to stem yen weakness although they are threatening to do so.