The markets took Monday off after a frenzied NFP Friday. There remains a bit of confusion regarding Friday’s dollar price action.However with EUR struggling to gain any momentum above 1.1800 overnight, it would suggest traders are still expecting a deeper USD correction, so the dollar bears are holding off for now.
The dollar remains tentatively bid post-NFP as dealers are likely more concerned with overcrowded dollar shorts that appear more brittle now than in anytime during the past 4-6 weeks.
The data void overnight has certainly dampened enthusiasm in Forex markets. However, all eyes are looking towards Friday'sUS CPI print.Given the enormity of inflation metrics in the Fed's rates outlook, I suspect traders will be reluctant to commit big views prior to the event and even more so given August's sparse liquidity conditions.
Equities continue to enjoy the “Goldilocks Markets “ as the Dow recorded its ninth straight record close. Certainly, investors are showing little concern for " irrational exuberance. " but provided the Feds keep the money tap open, the party will rave on.
Fed Bullard rolled out this usual dovish rhetoric anguishing over the low-inflation environment while crediting the USD weakness entirely on EU economic growth and a hawkish ECB. Fed’s Kashkari predictably waxed dovish on the low inflation low wage growth narrative. But investors could turn circumspect as the market prepares for the numerous possibilities around the US debt ceiling showdown.
No significant data to hang one's hat on today but dealers are setting sights on Draghi’s highly anticipated speech at Jackson Hole. But given the two way USD risk due to a combination of thin August liquidity and crowded dollar short positioning makes for dangerous trading conditions. I think the market is in agreement EUR strength should run further” which suggests that the EURO will remain bid on dips, little momentum in the markets which is clouding trader views.
Australian and New Zealand Dollars
Both AUD and NZD are trading on the soft side following US NFP.
The Kiwi has remained under pressure after New Zealand lowered their 2y Inflation expectations. But of course, the focus this week is on the RBNZ OCR on Wednesday. No policy shift is expected, but given the run of weak domestic data and a stronger local unit driven by a weaker US dollar, there is room for a dovish lean from the RBNZ in an attempt to influence the currency. The Kiwi's underperformance on the crosses would suggest this view also.
As for the Aussie, it’s a very sparsely populated domestic macro calendar, so the market remains in wait and sees mode. But Low oil prices and a looming OPEC meeting continues to weigh massively on the Energy sector, and by proxy the commodity bloc.
Regional focus shifts to China trade figures due out later today.
Extremely quiet trade and has barely budged over night. A sign that dealers are unwilling to engage and waiting for clearer signals.