Are Commodity Dollars Signaling a Broader Risk on Rally?

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Market Drivers October 21, 2019
Cable races to 1.3000
Risk on flows pick up
Nikkei 0.25% Dax 0.57%
UST 10Y 1.78%
Oil $54/bbl
Gold $1489/oz
BTCUSD $8240

Europe and Asia:
No Data

North America:
No Data
CAD Election

The dollar was weaker across the board on lively Monday trading in FX as the existential threat hard crash out of the UK out of the EU disappeared over the weekend with the passage of Letwin amendment that forced PM Johnson to ask for a delay in Brexit in case UK Parliament failed to ratify the deal in time of the October 31st deadline.

The odds of passing the Brexit deal as negotiated by Mr. Johnson are essentially 50-50, although the latest count suggests that he may have a slight edge in getting a majority in the House of Commons. Still, there are several Parliamentary obstacles that could stand in the way of a fully ratified deal including amendments that call for a full customs union and a possible 2nd referendum.

Regardless of the complexities at hand, the markets appeared to have been assured that delay will be the backup outcome providing an element of relief for cable which managed to trade through the 1.3000 figure before running into some profit-taking.

Elsewhere, the rally in risk-on FX continued with both Aussie and kiwi climbing to fresh multi-week highs as the former eyed the .6900 figure while the later cleared .64000. There was no significant news on overnight trade – indeed the whole G-11 eco calendar is barren today. Rather the move in commodity appears to be a short-covering relief rally supported by better equity flows globally.

At .6450 and .7000 both kiwi and Aussie are facing longer-term resistance and could once again run out of momentum as range trading persists. But the price action of the past several months suggests that both risk on pairs may have set a longer-term bottom and therefore could be signaling a broader risk-on rally in other assets which could surprise market participants given the generally downcast fundamental data in global GDP.

Boris Schlossberg
Managing Director

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