FX markets start the week directionless and scant motivation to pick a direction. EURUSD has already retraced gains achieved on Friday. Friday weak headlines payroll (164k vs. 190k consensus estimate), while unemployment rate fell to 3.9%, encouraged equity traders yet gained to excite USD bulls. The subdued wage growth lowered the risk of quicker rate hikes at the Fed. General risk on sentiment pressured the front-end of the US treasuries, which supported tech and financial sectors. Commodities have latched on the positive feeling to drive up oil prices (wti $70.69 high) and commodity currencies. Overall, market are waiting for new direction, willing to wait for fundamental guidance. The BoE and RBNZ are expected to hold rates while BoJ and Riksbanks will released policy meeting minutes. Perhaps the most meaningful data will be inflation from the US and Switzerland.
We remain sidelined on the current USD rally, as the rationale remains elusive. Overly short USD positive has been cut while interest rates correlation is inconsistent with pricing patterns. In fact in the G10 only the GBP is now driven by changing monetary policy. We do understand the risk that USD breakout of 3-month range suggests a stronger correction is in the making. However, lacking understandable drivers we would rather wait. Especially since looming deadlines for the Iranian nuclear deal and ominous warning from U.S. President Donald Trump's attorney, Rudy Giuliani, that other hush payments to women outside pornstar Stormy Daniels was a possibility. Political chaos in the US is now being ignored by the markets, however the closer we get to the midterm elections the higher the risk becomes. As for this week play the range with low probably of a break out expected. Of course, keep our eyes on Turkey were political instability is ramping up.
By Peter Rosenstreich