Sleepwalking

With US markets closed for the Presidents’ Day holiday, markets have done little more than meandered sideways in soundless trade. With few news events to influence rates markets, it was a very dull day in the currency markets. While most asset classes were quiet, industrial metals prices soared with Iron ore showing the way, trading to another multi-year high as the billet price rose three times during yesterday’s trading session.

Trader frustration is building as narrow trading ranges persist because contrasting market drivers confuse and the Trump headline effect is waning. While dealers spent the last few trading days sleepwalking, there are enough moving parts to keep things interesting, with European risks smoldering and Fed minutes on tap as Fed watch is creeping back into the headlines.

Euro

EUR traded a little heavy, but with much ink spilled over the French elections, the Euro has held remarkably well. Traders donned their noise canceling headphones, not wanting to get emotionally caught in EU political melodrama at this stage. G-10 traders are struggling to find a near-term catalyst for US dollar strength. Given the divergent market drivers, Euro political risk, and tepid dollar demand, I cannot help but think the current range-bound market will persist.

US Dollar

I sense a subtle shift from Trump headlines that drove risk, to a more Fed focus as the game of words should accelerate this week with the plethora of Fed-speak leading up to the FOMC minutes release. However, if we are looking for the Feds to raise the March flag, you may be disappointed as it is doubtful the FOMC minutes will resolve any debate on the fuzzy USD picture. However, of concern to the dollar bulls is even after last week's hawkish delivery, the Greenback failed to rally significantly and could not even maintain it prior levels.

Australian Dollar

The Australian dollar continues to trade constructively since the last China PPI print. Last week's profit taking move lower has run its course, and the Aussie is ready to pounce on the 77 level after another stellar performance in Iron Ore prices yesterday. With little new on offer from the RBA minutes, other than an unlikely event of the Fed aggressively talking up the March rate hike, the Australian dollar should remain very much in. However, the pair needs to make progress above the .7800 barrier to gain any significant momentum.

Japanese Yen

Mired in the ¥112-115 range as dollar bulls grow increasing frustrated that the dollar cannot make a convincing move to ¥ 115.0. With political angst brewing in Europe, I suspect this will cap dollar upticks until greater clarity on US Fiscal and Tax policies emerges.