FX Daily Strategy: Asia, Jul 9

FOMC Minutes, not yet released at the time of writing, will be digested for clues, especially given the scale back in forward guidance in the last meeting statement. In particular, a richer sense of what underscored the dot plots (perhaps the last of these in current form) will be useful in gauging where the Committee currently stand. 

However, as has been the persistent theme for months, Iran again very much sets the context within which the text will have to be placed and that is especially the case now with the latest re-escalation. Fed hike pricing had already reversed the payrolls driven trimming on the Trump comments (and threatened further strikes) with it's greater resulting uncertainty.

Indeed, discerning how much of Wednesday’s outburst was typical Trump international gathering ‘freestyle rhetoric’ and double-speak, or how much it marks a substantive change in the current state of play will have to be seen. Negotiator talks can continue even with the MoU declared dead (“though I think they are wasting their time”), which could either be essentially an unvarnished version of where the status quo actually already was. Or it could be a more significant shift in the short-term dynamics. Key, amongst other things, is probably whether the Strait actually remains open, if perilously so, or is back to either precautionary self-driven near zero flow, or even mutual blockading and exchanges in coming days.  

Oil, many times bitten, is erring to the optimistic version so far albeit encouraged to trim back from the $70 base on Brent. If agitations become a bit more embedded, then 38%~ back on the last leg down would be around $83 ½ or just below. $80-81 is also big figure and prior high/low area. So this zone marks the main limit on what would be corrective action. As long as the market is at least erring to risk, then the likes of NOK and CAD that were rather oversold before the recent strikes and Trump comment would also tend towards some covering. Unfortunately, trade is very much back to headline and event watching again, which the market had a brief respite from.

USD/JPY remains its own kind of echo chamber where everything seemingly supports up (until it doesn’t). The Iran flare-up and oil bounce offering support to the pair, even though the prior $50 drop did nothing to do the opposite. Likewise, risk on lifts, while tougher equity days seemingly don’t depress. So it remains a vibe driven market that is currently showing few inclinations to change even if it could do so in a hurry at some point.

EUR/USD remains seemingly a bit trapped immediately around 1.14~ both by competing pulls and by a sequence of large expiries all in the vicinity over the remainder of the week.

In terms of Thursday’s calendar, the early interest comes from the Minutes to the ECB rate hike decision meeting, although there are probably few surprises to be had here given the way the decision was so well signalled prior and then dissected at the presser.

In the US, Thursday sees weekly initial claims and June existing home sales, which we expect to rise by 1.9% to 4.25m.