USD can’t find a grip

By Stephen Innes, Head of Trading APAC at OANDA
OANDA MarketPulse

In the absence of Fed speak and tier one economic data, the US dollar is struggling to find a grip. Not to unexpected mind you, as traders continue to rebalance from last weeks global risk meltdown. And not to harp on existing risks, but what really matters is how the market is perceiving next weeks forward guidance from the Fed. So therein lies the conundrum. Despite the steady uptrend in US economic data, in the absence of inflation, no one, and I mean no one, is betting on an aggressive shift if Fed policy.

Gold is maintaining its tight correlation with the greenback, and despite the absence of escalating geopolitical risk, traders are all too knowing that we’re little more than a spark away from re-igniting a free for all, whether its EU political risk, trade wars or the more probable escalation in middle east tensions. But for now, nothing else matters other than the Goldilocks syndrome.

Oil market

Too far too soon. As hedge funds trip over each other to get in front of a probable shift in OPEC supply. Calmer heads prevail realising that while OPEC might compensate for the Venusaulain shortfall, it’s highly unlikely their robust compliance on supply curbs is going to fall by the wayside. But this is in no way to suggest we’re not in for a bumpy ride pre-Vienna.

Gold market

What the dollar gives up, gold traders make up. There remains far to much geopolitical risk on the table to lose the plot on the long gold trade. So buy on dip mentality even in the absence of risk aversion suggests gold traders are banking on the USD correction to extend further ahead of the Fed meeting.

Currency market

The current currency market narrative is all about corrections and rebalancing ahead of the next weeks Fed decision which points to a USD correction with the EUR driving the bus.