In line with the market as a whole, our prop desk is largely sitting on the sidelines. A slew of long EUR/USD positions have been closed out overnight providing a modest return, whilst some profits have also been booked on long gold. Those USD/CHF trades remain in play, too.

Daily Round up

Markets seem to be eyeing up the calm before the inevitable storm right now – limited economic data over the last 24 hours combined with a raft of political and economic events between now and the end of the week has left many traders sidelined, but this could be about to change. FOMC meeting minutes, the latest oil inventory data and ISM manufacturing prints from the US could all have some significant bearing on both the dollar and equity indices, whilst developments in the talks between China and the US at the end of the week will be under scrutiny to see how this might drive safe haven trades.

Fundamental Analysis – Markets Muted Ahead of Key Developments

Major currency pairs have shown little movement over the last 24 hours, with many traders left sitting on their hands ahead of key developments due between now and the weekend break. To put the lacklustre conditions into context, the stand-out moved was in response to yesterday’s surprise Canadian trade deficit. This served to push USD/CAD around 50 points higher in the short term, but this proved short lived and the pair has been left little changed as a result.

The summit between Chinese and US premiers that’s due to take place tomorrow and Friday is seen as key in determining where markets will go next. Not only are Trans-Pacific trade ties up for debate, but so is the subject of North Korea, with Trump set to be pushing China for intervention here. The latest comments from the US Secretary of State Rex Tillerson – that the US has nothing more to say on the matter – certainly ratchets up the pressure although we’re not even seeing any real favouring of risk-off trades as a result. Gold has retreated from recent highs and the waiting game looks set to continue.

UK PMI data is due for release at 8.30am GMT and this could provide some meaningful direction for the pound. The currency is still struggling to find support given the huge questions that lie ahead in terms of Brexit negotiations, so with traders wary, any shortfall in the readings could trigger another leg lower for GBP. In the immediate wake of last summer’s referendum, economic data has been better than expected but more evidence to show that the upside is running out here will do little to help prop up the pound.

At 6pm GMT we have the latest FOMC meeting minutes due for release here and the tone could provide some meaningful direction for the market. In recent months the expectation had been that stimulus policies from Donald Trump would underpin US rate hikes. The slow pace of reform may be threatening to take some inflationary pressures out of the market, but any suggestion that the Fed is looking beyond this could give the dollar another shot in the arm – and unsettle equities. Higher borrowing costs without accompanying tax breaks would again raise questions over these sky-high corporate valuations we’re seeing.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.