It was a hostile day to be a risk-seeker, even if one would need to check the screens twice judging by the impressive run in the New Zealand Dollar, recently supported by a higher dairy auction but paradoxically, with the RBNZ potentially readying a rate cut in August. But I digress, as one deconstructs the moves in the market, it becomes clear that there was a much higher degree of prudence all around as the S&P 500 lost nearly 0.8%, long-dated US-30 year bond yield open Asia on Thursday 0.61% lower, Gold printed a bullish engulfing bar on the daily and Oil continues to find sellers even if we are back to square one in the US-Iran hopes to bridge differences after remarks by Iran’s Foreign Minister. At the epicenter driving today’s market movements, we find the standstill by the US and China to make progress in trade ties. An article published by the WSJ highlighting the difficulties to move forward with Huawei led to the over-supply in risk to worsen. Shifting gears, when analyzing FX moves on a merit basis today, the EUR index keeps whispering that the market is in no mood to amass the currency, as expectations keep building up that the ECB may have found enough evidence to wait no longer before it introduces its new stimulus program as soon as next week. The USD, meanwhile, saw a moderate retreat, but nothing major, with today’s Fed speakers and the Fed Beige Book, reinforcing the notion that one or two insurance rate cuts are coming on the basis of 3 shaky pillars (global growth slowdown, trade uncertainty, low inflation). The JPY, as one would expect, attracted solid bids amid the shift to risk-off dynamics. The Swissy trod water, failing to attract the buying interest the Yen did. The Sterling, while it managed to stop the bloodbath in the last 24h, is still a currency with the most fragile macros, with banks such as Morgan Stanley calling for a 1-1.10 range as ‘fair valuation’ if a hard-Brexit ensues by the end of October. The CAD, meanwhile, has been trading for more than a week without the ‘punch’ it had us accustomed as a macro resistance in the index has been reached. Besides, intermarket flows, are far from ideal to be overly optimistic on the CAD heading into Thursday. Lastly, the AUD succumbed to risk-off by adjusting its valuation a tad lower even if the structure of the index is still of the most positive out there as the RBA will most likely take a pause in easing till Q4 at the bare minimum. Overall, the movements in Forex are still lagging way behind compared to the amount of vol experienced in equities or commodities.
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