Another Moody Monday

Cyclicals stocks should be under pressure early in Europe after the risk-off tone across Asia today. Still,  it has only led to selective US dollar safe-haven demand; instead, traders are moving into classical risk-off hedges like JPY, CHF, and Gold.

EURUSD had negative momentum into the end of last week with lower lows and lower highs. However, it is still holding 1.1750 so far. And with every downswing attempt failing, this heightens the risk of the momentum losing steam and a short position squeeze ahead of the FOMC. With the range narrowing, a breakout on either side could happen. If push comes to shove, I still prefer selling into the moves to 1.1810-20 or on a clean break of 1.1750.

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However, with 10y UST yields running out of steam above 1.30, the USD rebound could take a bit of a hiatus. And with risk sentiment is still a bit jittery with uncertainty around the impact of the delta variant, I prefer to belong CHF or JPY for safe-haven purposes, even more so with USDCHF seller putting up good resistance around 0.9220/30 and USDJPY similarly at 110.50-60.

Sterling had a quiet start to the week, drifting off a touch in Asia as equities slipped before stabilizing. Expect some consolidation or positional adjustment for now and remain flexible with an eye on risk assets elsewhere.

AUD drifted off a little at Asia open as a touch of risk aversion re-emerged with equities initially slipping, and the USD selectively bid. A gradual climb in COVID cases and local lockdowns weigh on risk sentiment contributing to the move lower in the AUD.

China stocks are down over 3%, and USDCNH traded firm through Friday's New York highs.

Still, foreign exchange flows early in the week could be more about position adjustments and reductions ahead of Wednesday's FOMC meeting, which suggests range trading could still be the order of the day. Only time will tell, but buckle in it could be choppy with Delta rearing its ugly head again.

Indeed, the ongoing spread of the "Delta Variant has investors looking over their shoulder for indications that Europe or even the United States policymakers might shift into placing mobility restrictions that could wobble risk sentiment and put a more aggressive safe-haven bid under the US dollar.

For Oil, the downside risk is limited in the near term by the deficit driven by OPEC+ (which is still significant at ~1.2-1.3mb/d, despite the planned OPEC+ production increase). Still, uncertainty on demand given the spread of the Delta variant means some of the optimism in the price at the moment may be unwarranted.