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By XE Market Analysis August 20, 2018 7:08 am
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    XE Market Analysis: North America - Aug 20, 2018

    The Dollar saw moderate firming during the London AM session, led by a flip higher in USD-TRY, which rose back above 6.000 as markets digested Friday's after-hours rating downgrade announcements by S&P and Moody's, though the Lira remained above the lows it saw on Friday. EUR-USD ebbed to a low of 1.1403 after opening in New Zealand near 1.1435-36. The Greenback also made modest advances on Sterling and the Dollar bloc currencies, while USD-JPY treaded in sideway paths above 110.50. Market participants are looking ahead to potential market moving events this week. We have the resumption in Sino-U.S. trade talks after a two-month hiatus, which will take place tomorrow and Wednesday, the release of the FOMC minutes from the recent meeting, and the Jackson Hole economic policy symposium, on Friday, which will feature a keynote speech by Fed Chairman Powell and provide ample opportunity for policymakers to expound talking points. There is also optimism, as expressed by Mexican officials last week, that a bilateral agreement on NAFTA could be reached this week. Brexit negotiations, which resumed last Thursday after a summer break, are also on the radar screen, and the spike in Italian yields and the causational political situation in Italy should also be monitored closely. USD-TRY has dropped back below 6.000, driven by a rebound in the Lira after Qatar's and Turkey's central banks signed a currency swap on Sunday which will facilitate liquidity and support from Qatar, though concerns remain about Turkey and other fragile emerging-world economies, caught out by a mixture of tighter U.S. monetary policy, hefty dollar borrowing and poor economic policies.

    [EUR, USD]
    EUR-USD has drifted modestly lower through the London AM session, presently at 1.1407 bid after printing an intraday low at 1.1403. The pair had opened in New Zealand at 1.1435-56, and the losses today reflect an unwinding of the gain seen late Friday on the WSJ story alleging that a summit between Trump and Xi was in the works. The summit has not been officially confirmed, while Turkish Lira has vaulted lower again, driving USD-TRY above 6.0000, following S&P and Moody's downgrades (on Friday). We retain a bearish view of EUR-USD. The relative strength of the U.S. economy should be showcased by incoming data, and show price pressures to be picking up, which in turn should girder the Fed's course to further tightening. Despite the recent turmoil in global markets, we still expect two more 25 bp hikes in the Fed funds rate this year, one in September and another in December. In Europe, concerns remain about the Eurosceptic populist government have come back to the fore, while the palpable risk of a no-deal Brexit is an added downside risk for the Euro. EUR-USD has resistance at 1.1427-30, and last week's 14-month low at 1.1301 provides a downside waypoint.

    [USD, JPY]
    USD-JPY has been skirting above the 110.50 in directionally challenged trading ahead of some potentially market-moving events this week, including the recommencement of Sino-U.S. trade talks after a two-month hiatus (Tuesday and Wednesday) and the Jackson Hole gathering of central bankers (Friday). The Japanese currency having seen a layer of its safe-haven premium shaved off amid improved risk appetite ahead of trade talks between the U.S. and China, which will take place in Washington DC from tomorrow, although China's Vice-Minister Wang Shouwen and Treasury undersecretary David Malpass, who will lead this week's discussions, are relatively junior officials and there is a general sense of wariness about anything substantial will be achieved given this, and given the gulf in differences between the two sides. A WSJ report on Friday raised spirits by alleging that a summit between president's Trump and Xi is in the works, but the report, which cited unnamed officials, hasn't been confirmed officially. Trump and Xi are already due to meet when they attending the G20 Leaders' Summit on November 20 in Argentina. USD-JPY has support at 110.10-13, levels which encompass recent range lows.

    [GBP, USD]
    Cable racked up a sixth consecutive week of declines. Political and associated Brexit-related risks are keeping the pound in a lower trading band than it otherwise would be. Negotiations re-commenced between the UK and the EU last week, and Latvia's foreign minister said on Friday that there was a 50-50 chance for there being a no-deal Brexit, which UK's foreign minister, Hunt, concurred with, remarking that "time is running out." Hunt, who supported the UK remaining in the EU, also said that if the UK left the EU without a new deal in place "it would be a mistake we would regret for generations" (something that is contested by strong supporters of leaving the EU) Cable has trend resistance at 1.2810-12.

    [USD, CHF]
    EUR-CHF has turned moderately lower, to levels around 1.1350, after pegging a 10-day high at 1.1394 on Friday. The cross remains comfortably above the one-year that was seen at 1.1243 last Wednesday. Ankara's success in halting the rout of the lira and news that the U.S. and China are heading back to the negotiating table have given the franc opportunity to come off the boil. SNB Vice Chairman Zurbruegg said last week that the central bank's ultra-accommodative monetary policy (negative interest rates coupled with tactical forex interventions) was justified in light of the franc's surge in the wake of the Turkish economic turmoil and flash of contagion in other emerging nations with high levels of dollar borrowings.

    [USD, CAD]
    USD-CAD has consolidated the steep drop that was seen on Friday following the release of hotter-than-expected CPI data out of Canada. The pair logged a four-session low at 1.3052, and this level and last week's low at 1.3050, now form a key near-term support zone. There remains a built-in discount to the Canadian Dollar, relating to the NAFTA renegotiation, so USD-CAD will remain directionally sensitive to developments on this front. The pair has resistance at 1.3098-1.3100.

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