Risk Off Theme Weighs on Greenback

Our prop desk is finding profit off the back of a long cable position opened on April 10th, whilst those short S&P trades continue to yield a profit. We are also seeing long GBP exposure having been added to in recent hours.

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The economic data is running a little thinner, although UK wage readings this morning may provide some fresh direction for the pound. The bigger story however appears to be one of risk mitigation and the greenback is under notable pressure as a result. So far we haven’t seen this filter across to US equities in any meaningful sense, but with US treasury yields cooling, there’s some concern building that the rally could be running out of steam.

Fundamental Analysis – Risk Off Theme Weighs on Greenback


There have been some notable declines for the US dollar in recent trade but it’s sentiment rather than fundamentals that are driving the moves in the short term. Traders still have one eye on the long weekend shut down we have approaching, but equally there’s rising concern over the geopolitical landscape – along with the fact that the much-vaunted economic revolution that Donald Trump had been talking up seems increasingly unlikely to materialise. The slide for USD/JPY below 110 – the first time we’ve seen a move down here in five months – typifies this sentiment and as it stands right now there’s little to suggest this risk off mentality won’t simply continue to build in the weeks ahead.

Sterling has been a rather unlikely beneficiary of this drift away from the dollar, even with no surprises in yesterday’s inflation data. However we have UK employment and wage data both due for release at 8.30am GMT this morning and a break higher in terms of salaries here could really serve to fuel the idea that the Bank of England won’t be able to hold fire over interest rates for much longer. A sustained break above the psychological 1.2500 for cable could well follow.

We have the Opec monthly report set for release at 11am GMT today and this could provide some meaningful direction at least in the short term. Crude pries continue to march higher in light of concerns over how the potential for conflict in the Middle East could impact distribution, but anything that suggests a lack of conformance with the production quotas introduced at the end of last year may be sufficient to initiate a degree of profit taking.

At 2pm GMT the Bank of Canada releases its quarterly monetary policy report which will include projected growth forecasts for the country. There’s no suggestion that we will see any change in interest rates this month, but anything that serves to talk up the idea of tightening monetary policy in the near term will likely drive support for the Loonie, especially against the greenback. Economic data out of Canada is improving, whilst the steady rise in oil prices will also offer encouragement.

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

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