Risk-aversion unsettles markets

Michael O’Neill

FX Trader, Loonieviews.net

There is a whiff of risk-aversion wafting around financial markets. The sell-off in the Argentinian peso, sparked when Argentinian officials asked the International Monetary Fund to speed up a payment, led to fresh losses in the Turkish lira. Lingering contagion fears due to European banks' exposure to Turkey depressed European equity markets. Traders are also a little nervous about the lack of progress in the China/US trade talks, believing that a successful Nafta negotiation will encourage the American’s to play “hardball.”

Wall Street traders are following Europe's lead. The three main indices opened with small losses but, to put it in perspective, they are occurring after a gain of 1.1% in the Dow Jones Industrial Average, since Monday. The S&P 500 and Nasdaq have performed similarly. There is also month-end noise to consider.

FX markets have gotten into the act and are buying US dollars. EURUSD dropped from 1.1694 at the New York open to 1.1655 as of 13:45 GMT. Even news that the European Union offered to cut tariffs on US cars didn’t help sentiment. US economic data have not been a factor this morning. 

Once again, the star of the FX show in New York is the Canadian dollar. Bearish USDCAD trades are being trashed. USDCAD soared to 1.2996 from 1.2925 with a break above 1.3005 extending losses to 1.3050. The catalyst for the rally was a weaker-than-expected Canada Q2 GDP gain of 2.9%, rather than the 3.0% that was forecast. Statistics Canada said “growth was mainly driven by a 2.9% increase in export volumes –the largest gain since the second quarter of 2014. Exports of goods, led by energy products, rose 3.6% after increasing 0.3% in the first quarter.”

Nevertheless, the report wasn’t strong enough to suggest a September 5 rate hike was likely.

The USDCAD rally was exaggerated because of the stretched short USDCAD positions which were set up in anticipation of a Nafta deal announcement. The prospect of a deal combined with reports of good-sized USDCAD selling for month-end portfolio rebalancing should limit USDCAD gains.

Enlarge
USDCAD (hourly, source: Saxo Bank)

You can access both of our platforms from a single Saxo account.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)