Relief! Risk FX Rebounds

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Market Drivers March 26, 2018
Relief rally send JPY crosses higher
USDJPY above 105.00
Nikkei 0.72% Dax 0.33%
Oil $66/bbl
Gold $1344/oz.
Bitcoin $8400

Europe and Asia:
NZD Trade 4.9B vs. 4.2B

North America:
No Data

FX markets saw a relief rally in risk on the first trading day of the week with yen crosses rising across the board and EURUSD and GBPUSD gaining as well.

After several intense days of risk aversion sparked by the announcements of trade tariffs last week, the markets were in much more upbeat mood as it became increasingly clear that Mr. Trump’s bark was much worse than his bite as the actual substance of his trade policy did not seem as punitive as initially feared.

Additionally, the signing of the US budget spending bill after much much bluster and grumbling from Trump also assuaged investors who were hopeful that the political risks have eased. USDJPY rose back to 105.00 and remained well bid while EURUSD pushed through the 1.2400 level and cable nudged past 1.4200.

Some of the best gains were recorded by kiwi which was up 0.72% on the day within striking distance of the .7300 level as better Trade balance data and news that RBNZ will now carry a dual mandate for employment and inflation spurred buying in the pair on both a combination of risk flows and hopes for stronger growth going forward.

It’s too early to say if the risk aversion flows have peaked and the risk rally will continue, but given the measured responses from China on trade, it appears that both parties wish to resolve the issue behind closed doors without escalating the conflict into s full-blown trade war. And as long as Mr. Trump does not exacerbate the situation, capital markets may see the relief rally extend this week against a very barren economic calendar with little event risk on the docket.

If US equities, not only hold their current gains but extend them as the day proceeds the rally in risk FX should extend especially if key barriers such as 105.50 in USDJPY 1.2450 in EURUSD and 1.4300 in GBPUSD fall by the wayside forcing late shorts to cover.

Boris Schlossberg
Managing Director

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