EUR/USD, USD/JPY, NOK/SEK flows: FX sleeping but oil is still moving
Pre-Fed intertia and as market digests two-way pull of deal impact
But oil is still active, extending the break lower and threatening bigger range shift
As such, mkt may later re-focus on ToT and oil trade narratives
While the FX market remains a bit sidelined at present, as it digests the two-sided implications of a deal (lowers Eurozone exposure but also rate trajectory and yields for example) and more importantly as it waits to hear from the Fed. The latter brings both a tactical and a strategic update given the projections and the new chair.
The one market that notably isn’t so pacified though is oil, where a decent amount of follow through action is on show. Nymex front month has taken out the April low. While it does still have the false spike low from 10 Mar below it, it is therefore threatening more of a fuller breakdown into a significantly lower price range band. Likewise on Brent.
That does suggest that once the Fed is out the way, there is scope for the market to focus back on ‘oil shock trades' and in general to again remind itself of terms-of-trade drivers that were prominent.
On that front, the yen for examples does seem to have forgotten, for now, how the terms-of-trade shock, and its knock-on fiscal implications, were significant narrative drivers for its accelerated downside relative to prior trends and correlations.