Morning Commentary: Headline Ping-Pong

Foreign Exchange - Morning Commentary
Headline Ping-Pong
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets and investors continue to be bombarded by news, data, headlines, and tweets that are playing havoc with market psychology and positioning. The increasing amount of uncertainty generated by both domestic and geopolitical events, with no end in sight, is almost overwhelming. Even the NBA has been dragged into the mix regarding the U.S.-China relationship.  One day, events are seen as pessimistic and the next day, there is a total reversal of fortune.

This reversal of fortune has been evidenced over the past 24 hours. Yesterday, markets were in “risk-off” mode with U.S. and global equities and interest rates reflecting the pessimism surrounding the expectations for the upcoming U.S.-China trade talks as the U.S. slapped more sanctions on China. Today, hope springs eternal as China has signaled they remain open to a partial trade deal despite a host of potential headwinds.

Markets have returned again to a “risk-on” mode with European equities higher, U.S. equity futures also reflecting renewed optimism, G7 interest rates slightly higher in yield and safe haven currencies retreating. One interesting byproduct of all this whipsaw price action is that market volatility measured by the VIX index and the JPMorgan currency volatility index remain largely unaffected and have become numbed to the daily rash of ping-pong headlines.

We are living in uncertain times with way too many geopolitical hotspots around the world compounded by our own domestic politics. Trade talks, Brexit, Turkey, Hong Kong, the impeachment inquiry, monetary policy etc. will continue to create chaos and mayhem for market participants and for market psychology. To our clients, continue to be tactical during these uncertain times.

  • Looking for currency guidance from the most recent IMM FX positioning report also reflects the bipolar nature of market positioning motivated by either optimism or pessimism surrounding a country’s economic fortunes. Overall, the USD remains favored but long positions have been reduced by the two Fed rate cuts and expectations of more down the road combined with the ongoing impeachment inquiry. Other currencies where there are long positions are Canada, Switzerland, Russia, Mexico, and Japan. Large currency short positions reside with Brazil and New Zealand with more modest short positions with the U.K., EZ, and Australia.
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