USD is still very data dependent, so it will be difficult to act

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USD is still very data dependent, so it will be difficult to act

American rates

The markets are counting on a higher probability of a terminal interest rate of more than 3.5%, indicating a convincingly aggressive picture of FOMC last week. Chair Powell's language around a healthy economy with an emphasis on data dependency suggests that the Fed will continue to walk far into the restrictive territory or at least until the data weaken. It seems that Powell is not a big supporter of FOMC forward guidance and sees the interest rate of the FOMC too loose. But when we think about the shortage on the labor market, which should eventually push up inflation, the markets are too skeptical and now they are returning part of that pessimism, now that the Fed seems to be on course to see interest rates for the quarter. increase in the near future.

Currency markets
G-10 focus on CAD, EUR and JPY

The USD is still very data dependent, so even with a hawkish nod from the Fed, the US dollar will be difficult to trade.

Bloomberg reports that US and Canadian negotiators are close to a deal on NAFTA and there is optimism that it will be reached by the Sunday term – a result that would avoid a stalemate that would endanger $ 500 billion in annual trade, people who were known with the talks said.

There is renewed urgency to establish a new North American Free Trade Agreement that could be published Sunday so that Mexican President Enrique Pena Nieto can sign it before he leaves office, according to the people. The US and Mexico reached agreement in August, initiating talks between the US and Canada, which are taking place around the clock this weekend. (Bloomberg)


My opinion: steveinnes123

What is interesting about this latest turn is that the American trade representative is expected to publish online text this weekend that will contain more of what Mexico has so far accepted in NAFTA2. But the text had to exclude details about Canada. Because the version has never been placed online, American trade representatives can not do this, so they can place one for a trilateral agreement containing a Canada provision? Many smoke signals during this call, and where there is smoke, there is usually fire.

The Canadian Dollar

The implication for the Canadian dollar is enormous. Given the great GDP pressure last week, a data-dependent BoC Governor Poloz, and sky-high oil prices, 1.28 & # 39; s appears to be a lock. But with a commodity block of currencies that is expected to get a boost from the rising prices of hard and soft commodities, there may be more juice to squeeze than the Canadian dollar.

Please note. I still find a deal on the eve of the Quebec, 1 October, a bit of an issue given the liberal political consequences (provincial and federal) for all concessions on the dairy industry, since the majority of the Canadian milk industry is based in Quebec. The most recent IPSOS survey shows the provincial liberals and coalition Avenir Quebec on a glowing plate. Quebec produces about 50 percent of the Canadian dairy industry and the agricultural sector is about the same size as the car industry in Ontario. Nevertheless, the market remains on the NAFTA watch.

The euro

The Italian budget aside, as EU-influenced political hitches generally have a very short half-life effect on euro sentiment, higher US interest rate expectations amidst the background of the divergence between the Fed and the ECB, all the more lukewarm inflation in the eurozone print on Friday, the sentiment of the US dollar will underpin. The economic recovery in the euro zone is so uneven that the EURUSD could go lower, for no other reason than the robust American economic story. Traders will probably look at it to make EURUSD shorts available again for upticks.

The Japanese Yen

If the returns of NKY and US remain higher than 10 years, there is no reason why the markets should not stop this week. However, contrary to my original idea that the USDJPY was a sub-ownership position, the latest CFTC data paint a different picture, since Yen shorts have been at the highest level since the beginning of March. However, these derivative positions may have different dependency paths than strictly the USD. So with the US interest rates will rise in the near future, albeit with comments that the US economy is not in the tank, regardless, with US interest rates that will rise in the near future, albeit with comments that the US economy is not go into the tank, USDJPY should go higher.

The Australian Dollar
Much more attention to the American interest rate outlook in the wake of the FOMC, and this is taking place in the short hand of the USD. I think the markets are difficult because USD movements are completely data-dependent. Although the RBA rate decision is on tap, there will be an excessive focus on the next week's NFP, but more on wage components, as employment growth in the US fluctuates in every way, but the FBI is looking for that elusive inflation spark. But here I temper my bearish Aussie expectations. With higher raw material prices this will undoubtedly be a blessing for commodity-linked currencies, so against many predictions I see the Aussie higher up on that story alone.

Asia EM

Malaysian ringgit

The two main competing stories, rising oil prices versus higher US interest rates should see the MYR trading neutral to negative this week. The fact that there is a limited positive result of the sky-high oil prices suggests that investors remain incredibly nervous about the rising US dollar and higher US interest rates. Note my views until last week. FOMC swung like a pendulum on the ringgit, but with chair Powell making headway for Fed Hawkishness, as opposed to neutral to sultry BNM prejudices, my MYR lean shifts negatively in the short term.

Non-Farm Payroll already in focus

A little more than a week after the FOMC, Friday's non-farm payrolls take the huge dollar momentum interest in the short term, as a critical focus will be on US wages, and how quickly they can expand in September, a may have a significant impact on the projected rate of US interest rates. Indeed, this week will probably start with a new sonic thump!

US equity markets: higher interest rates in the US must ultimately be a factor.

US equity markets remain on solid foot, supported by the impenetrable technology sector. For the time being, the US stock markets are showing an incredible dependence on higher interest rates and a possible escalation of the trade war between the US and China, as the markets are still supported by the robust domestic economy. But at some point the distance between the US and the rest of the world economy will go through asynchronous global growth feedback. But if you start thinking about higher US interest rates and the determined determination of the FBI to empty the punchbowl, we might be approaching this turning point because the markets have been living with cheap borrowed money for some time. Ultimately, higher US interest rates will become a significant negative factor.

China Markets: Manufacturing PMI wobbles

Not surprisingly, the official factory barometer of China slowed more than expected in September, while the index for services and construction was unexpectedly picked up.

The manufacturing industry PMI recorded a disappointing 50.8 in September against 51.3 in August, below the median of Bloomberg of 51.2, but remains marginally above the contraction. But the non-industrial PMI rose to 54.9, compared to 54.2 in August, so a little flattening, even when you consider that China denies exports in favor of domestic demand.

While the tariffs cause some fraying at the bricks and mortar level, China continues to support the demand side of the equation, so while the PMI for the manufacturing industry is weak, the decline is not completely uncontrollable.

Oil markets

Brent crude oil closed the quarter spectacularly, as the potential impact of US sanctions on Iranian exports continued to increase with a report that cut at least one Chinese refinery on purchases.

As reported by Reuters Singapore on Friday:

"China's Sinopec Corp halves the cargo of crude oil from Iran this month, because Washington State refineries are under heavy pressure from Washington to comply with an American ban on Iranian oil from November, according to people with knowledge of the case."


Show me the barrels

So, given the evolving story of the Chinese refinery, until the OPEC offers the comprehensive range, traders will continue to push, with unbridled speculation showing that US $ 100 per barrel Brent is not just a dream for oil

What is the next bullish catalyst?

Over the weekend, US President Donald Trump called Saudi Arabia's King Salman and they discussed efforts to maintain market supply, stability and global economic growth, the state news agency SPA said late on Saturday.

But let's not be mistaken, higher oil prices bring tears of joy to oil producers, including those in Texas and Oklahoma. And while Saudi Arabia continues to make concessional overtones, but the real question is, even if they wanted to bow to President Trump's wishes, how much spare capacity does the Kingdom have? We will soon discover that, because about 1.5 million barrels of Iranian oil are effectively offline on 4 November. If the market is of the opinion that Saudi Arabia's capacity is drained at 10.5 million barrels per day, despite their legendary bottomless source, oil prices will rise higher with the flashy price tag of $ 100 per barrel indeed a reasonably sounding target.

The Middle East powder barrel

The smoldering embers in the Middle East will re-ignite if the New York Times reports that the US is evacuating its consulate in southern Iraq because of attacks of recent weeks by militias backed by the Iranian government. Iran needs to understand that the United States will respond quickly and appropriately to such attacks, "said Mr. Pompeo in the statement

The New York Times

This could at least be one of the thoughts Tehran had on circumventing US sanctions by closing deals to supply oil to Europe. Maximum, further escalations by Iranian backed militias could see the hawk of the foreign government's foreign policy take flight. And do not take John Bolton's commentary at the UN General Assembly as an inactive threat: "If you cross us, our allies or our partners, if you harm our citizens, if you continue to lie, cheat, and cheat, yes, there will be indeed a hell to pay. "Bolton is foreign policy hawk # 1 and it's all right when he comes to defeat war drums, even more when there are signs of increasing unrest Iran is the target. Political noise in the Middle East is usually positive for oil prices.

Golden markets

A reality check because spot gold sold very aggressively, while the American dollar started to confirm again on Friday. In the past three months, gold has traded more as a currency than if a safe investment has an advantage. As the Euro tumbled over, the fall of $ 1190 broke away and sales were intensified as stop loss was activated, and players used short-term to gain downward exposure. However, the move of $ 1190 was brought back to the weekend when the traders realized that they were deep in the oversold area and to be honest they (we) needed the weekend to think about what just happened !!

It can be a make or break week for the short-term ambitions of gold, and the story will probably unfold on Friday's US Non-Farm Payrolls release.

Gold has been a sellers' market for some time, but with a return of $ 1190 we are now firmly in the Gold Bear zone and as such with the USD dollar likely to strengthen as a result of widening interest rate spreads, sales activity may increase with speculators likely to target the low point of August when the yellow metal hit $ 1160 before it rebounded.



Please Join me on Bloomberg TV live from the Singapore Studio at 7:10 am SGT Monday, October 1, discuss my views on the RBA, Brexit and splashed with a bit Brent and a sprinkled with Iron ore flakes.

Bloomberg TV Asia

Later in the day, come with me at my weekly 24-hour European Open Spot of France at 12:15 pm SGT on how Asia markets are they today

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leverage transactions are high risk and not suitable for everyone. You can lose all your deposited money.

Stephen Innes

Stephen has more than 25 years experience in the financial markets and is currently based in Singapore as Head of Trading Asia Pacific with OANDA. Stephen's market images focus on the movement of G-10 and ASEAN currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His appearances in the media include Bloomberg TV & Radio, BBC International, Sky TV, Asia Channel News, ASTRO AWANI and BFM Malaysia. Stephen has extensive trading experience in Spot and Forward FX, currency and interest rate futures, money market derivatives and precious metals. Prior to joining OANDA, he worked with organizations such as Nat West, Chemical Bank, Garvin Guy Butler and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and earned a degree in economics from the University of Western Ontario.

Stephen Innes

Stephen Innes

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