“Fire & Fury” Faces Risk Off
The geopolitical tensions have prompted a risk off trade amid investors. The president Trump's comments about North Korea have created nervousness and the fear is if the president really means what he said "fire and fury". The typical text book trade is that investors rush for safe haven hence we have experienced a bounce for the gold price. A couple of days ago, we did mention that the gold price could also stem its losses if the tensions escalate around North Korea.
The Chinese inflation data was tucked under the shadow of the president Trump's "fire and fury" phrase. Although it is worth mentioning that the inflation number was a little softer and this means the spill over effect is going to echo the same message in other major economies.
Aussie Lost Its Momentum
The Aussie benefited from the dollar weakness but the rebound in the dollar got the Aussie in trouble. The Australian business confidence was much healthier yesterday which presents more optimistic scenario for the uptrend to resume. The weak consumer sentiment reading broke the Aussie rally further. But it is the RBNZ which is going to face all the flash lights and fear of disappointment is always there. Traders are expecting no reaction from the bank. We are expecting the bank to come with their dovish or less hawkish tone because of the deterioration in the economic data but a lot of impact of that is already baked in the Kiwi.
RAND Sell Off Continues
The South African Rand is punished by investors as the president Jacob Zuma narrowly survived a vote of no confidence in the parliament. His victory triggered many stop losses as it was expected that he will not survive. We expect the rand to underperform against the dollar. In other words, the overly optimistic trade is over for now.
The Dollar Index Bounce Strongly On Cards
The US JOLTS data also gave traders hopes that the US firms will keep employing and the pace of hiring would be solid. At the same time, there are less people who are quitting their jobs, a measure which the Fed keeps a close eye on. This confirms that the health of the US jobs market is sturdy and the dollar moved higher on the back of that. However, James Bullard, St Louis Fed, had very dovish tone because he thinks that the inflation is not strong enough. Neel Kashkari, who is also a voting member of the Fed committee has the same dovish stance and he doesn't not favour another rate hike.
We need to break the level of 94 for the dollar index in order to have a firm confirmation that the trend has changed. The dollar index also needs to stay above the 100-day moving average. The technicals are favouring that we are going to break to the upside.
Euro Weaker Against Dollar But Strong Against Sterling
The Euro is losing its mojo against the dollar but still strong against the Sterling. The French trade balance data confirmed that the French economy has improved. Similarly, the German economy is in the healthy territory. However, the recent strength in the euro surely presents a much larger threat to export. The upcoming GDP number for Germany is also expected to print more positive reading. That would put more pressure on the ECB to start the process of tapering. Tapering doesn't necessarily mean that the Euro would move higher because if the ECB shows that they are concerned about the Euro strength, they would surely knock its strength down.