Wednesday 9 October: The state of play.

So far, it's been a bit of a strange week. Nothing has fundamentally changed to alter the 'soft landing' view. But a combination of disappointment over further Chinese stimulus, underlying middle east concerns and the US 10year bond yield rising above 4% has caused an underlying negativity ensuring the VIX remains above 20. Meaning risk on' trades have been a no go. But the negativity hasn't been powerful enough to have confidence in a 'risk off' trade.

The strange environment is highlighted by how strong the EUR has been (should be fundamentally weak) and how weak the CHF has been (although fundamentally weak, should be strong in a risk off environment).

Throw in the fact it's anyone's guess if the BOJ are hawkish or dovish (I'm not sure if they know themselves). And it all adds up to uncertainty.

In other news, a 50bp rate cut from the RBNZ, with the market pricing more NZD cuts has made AUD NZD longs look attractive. The risk to that trade would be 'liquidity', meaning if the risk environment causes AUD to weaken Vs USD or JPY, it could send it lower Vs the other currencies.

The FOMC minutes haven't caused a stir. And my take away is the unanimous view that disinflation is on track.

In conclusion, all arrows point to Thursday's US CPI data, a benign number will hopefully re-ignite 'risk on' trades. But a higher than forecast number could send the VIX so high that a 'risk off' trade is unavoidable.

Please feel free to email any questions: johnelfedforexblog@gmail.com