FX – A Seesaw with Little Rhyme or Reason

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Market Drivers September 25, 2018
Preet downplays Draghi comments
Seesaw moves in FX
Nikkei +0.29% d Dax 0.07%
Oil $72/bbl
Gold $1198/oz.
Bitcoin $6400

Europe and Asia:
EUR Wholesake Prices 0.3% vs. 0.2%

North America:
No Data

A total seesaw night in FX today with EURUSD first rising towards the 1.1800 level on news that Italian government promised to adhere to EU budget guidelines, only to tumble to a low of 1.1735 on comments from ECB’s Praet.

Peter Praet, the chief economist of ECB stated that Mario Draghi’s comments yesterday “weren’t anything new”, thus downplaying the hawkish overtones of Mr. Draghi’s speech and the market quickly reversed course taking euro lower by a quarter penny.

The price action was just the reverse in pound which slipped below 1.3100 on Brexit concerns only to quickly pop 40 pips on short covering moves.

Overall there was little rhyme or reason to today’s action as the markets essentially traded back and forth awaiting tomorrow’s marquee event of the week – the FOMC rate decision. Ahead of the announcement, USDJPY remained well bid with traders fully expecting a 25bp rate hike on Wednesday, but the real question for the market is whether the Fed which has been uniformly hawkish in its assessment of the US economy will take note of the burgeoning trade war and soften its stance as a result. USDJPY remains capped at the 113.00 level for the time being and until it takes out that level with force the uptrend in the pair is suspect.

With no eco data on the calendar, the main driver of the US session could be Donald Trump’s speech at the UN. The President is expected to use his second United Nations address to denounce what an aide called Iran’s “global torrent of destructive activity.” If his rhetoric carries heavy undertones of aggression, it could spook the markets once again and spur another round of risk off selling. Most likely, however, the price action will remain contained as traders await for the Fed tomorrow.

Boris Schlossberg
Managing Director

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