The currency market is in a holding pattern ahead of the abounding barrage of risk events late this week, which will start with the FOMC on Wednesday, the ECB policy meeting and UK general election on Thursday, ahead of the decision on Chinese tariffs by Sunday Dec 15. The ebbs and flows into trading currency has, therefore, understanbly receded significantly. If one is to play positions this week, be quite strategic as this tranquility is leading up to an injection in vol. As I’ve detailed in the last report, the Central Bank events are likely to act as an idiosyncratic factor mainly influencing flows into individual currencies, even the UK general election may see volatility largely contained within the walls of GBP-related pairs. It’s going to be the decision by Trump to either enact or suspend tariffs on China, with the deadline this coming Sunday, that may see the most impact in financial markets as a whole, as this has been, without a doubt, the overarching theme that the market has been most sensible to, and crunch time is looming fast. As the chart below shows, the movements in FX have been rather tepid, with the GBP and NZD still maintain its advantage when accounting for last week’s performance, while the USD, CAD and EUR, in this order, remain the least favored this Dec. Sandwiched in between we find the JPY, CHF and AUD, as we await more conclusive price action.
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