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The sour start to the week for risk sentiment saw a continuation of that theme in overnight Asian trading, with investors looking to rotate into traditional safe-haven asset classes and shed exposure to high-yielding instruments.   The struggles for the Bank of Japan are also continuing, with their latest venture into negative interest rate policy so far failing to bear fruit as the Nikkei dropped 5.4% during its session, sparked by a rush of capital into the safety of government debt which pushed the yield on 10-year Japanese debt into negative territory for the first time ever.   Along with plunging bond yields USDJPY is collapsing lower as well, and though off its earlier lows as risk appetite manages to recover somewhat midway through the European session, the yen is stronger against the American buck by almost 0.5% as we go to pixels.

Part of the catalyst for the buoying of risk appetite as we get set for the North American session is the fact that oil prices have managed to find somewhat of a bid tone from the downward pressure experienced yesterday.   Front-month crude is up above the $30 level this morning, despite reports released overnight from the International Energy Agency that cautioned the global oil glut was likely to continue in the short-term, citing the low probability of coordination on production cuts from non-OPEC and OPEC producers.   In addition, the energy agency sees a strong American dollar and increasing supply in 2016 from OPEC as sufficient to keep downward pressure on prices in the short-term, with the lag time from a sharp drop off in shale production taking longer than expected to materialize.   API oil stock numbers are due to be released at the close of today’s North American session, but tomorrow’s IEA inventory numbers will be closely watched given the large builds that have been registered the last two weeks.   Since the data will be released right around the time Janet Yellen will be giving her testimony to Congress, expect heightened volatility in financial markets Wednesday.

As we head into the North American open, S&P equity futures are showing a slightly red hue to their tape, though of a magnitude much smaller than witnessed yesterday.   With the hydrocarbon market finding buying support south of the $30 level, the loonie is on its front foot against the big dollar ahead of the opening bell, and with little in the way of tier-one North American economic data we are likely to see risk appetite and the oil market continue to influence price action in the waterfowl for the remainder of the session.   JOLTS job data for the month of December is set to be released in a few hours, and although somewhat stale data, will nonetheless be analyzed by those in the dollar bull camp to assess whether ancillary indicators of tightening in the US labour market continue to improve.

Further reading:

GBP/USD: Trading the British Manufacturing Production

USD: History Repeats Itself So Elegantly – Deutsche Bank