The Bannon Bounce?

Steve Bannon was removed from the White House under the Trump administration.  Image by REUTERS/Jonathan Ernst as seen on The Week

Steve Bannon was removed from the White House under the Trump administration.  Image by REUTERS/Jonathan Ernst as seen on The Week

The markets pivot to Jackson Hole this week could obscure the underlying political Trump risk that currency markets have been feeding off. While debate unfolds as to what Bannon’s removal means for the Trump administration economic agenda, it’s difficult to believe the answer to all that ails the West Wing, was a Steve Bannon departure.

Market watchers were looking to square positions ahead of Jackson Hole and even the subtle notion that Bannon’s departure would skewer the presidents contentious ”America First” policies was signal enough ahead of the potentially Topsy Turvy Thursday when Jackson Hole summit commences. Overall, one senses the FX markets are adopting a neutral to flatting bias in early APAC trade.
 

US Dollar

Whitehouse politics will remain in play, but given some of the outsized currency moves of late, it’s not too surprising dealers are paring short dollar risk as the shift to the Jackson Hole summit will put the focus back on Central Bank watch. And of course, dealers will start to factor in the best-case calculus for the USD dollar. As unlikely as it may be, if the Feds provide a definitive balance sheet reduction date along with affirmation of a December rate hike, we could have an abrupt shift in USD sentiment.
 

Japanese Yen
Given the North Korea Geo risk and the Whitehouse expanding quagmire, it’s difficult to view Friday’s move above 109.25 USDJPY as little more than a dead cat bounce. But with the shift to Monetary Policy on tap as we approach Jackson Hole, market moves are more about risk paring than risk-taking.
 

Euro
There has been a lot of anticipation on whether ECB President Mario Draghi used the Jackson Hole platform to signal a change in ECB balance sheet policy. However, the unknown ECB sources threw cold water on the debate last week, and while the EURO has remained bid on dips, it’s lacked any serious upward momentum since. With the ECB minutes showing officials expressing concern over EUR strength, it’s hard to hard to see this view changing ahead of Thursday
 

Australian Dollar
A highly debatable rebound in risk appetite saw the Aussie trading above the .7940 levels into the weekend, which looks more about weekend positions squaring rather than anything else. With the lack of fundamental drivers for the moment, it’s best to pick your spots wisely and trade nimbly.