Euro climbs vs dollar
Risk in trading continued to push asset higher in low liquidity. Heck even commodities and bitcoin has taken a slightly bullish tone. Equities have rallied for three days in a row as fear of a Turkish currency collapse has faded and plan for high level tariff talks between the US and China should being as early as Wednesday. Markets are now waiting for Fed Chairs Jerome Powell’s remarks on the symposiums primary topic “Changing Market Structure and Implications for Monetary Policy.” US treasures have moved higher as reports grow President Trump has taken issues with Powell’s monetary policy approach and rate of interest rate hikes. Flatting of the US curve and expectation for political disruption has provided an opportunity to liquidate overbought USD. EURUSD has staged a recovery bounce towards 115.30 potentially indicated an end to unbridled greenback strength. USD would need a significantly hawkish shift (which we don’t anticipate) for additional repricing of the curved to get further ahead. At this point sentiment in Europe has shifted from last weeks doom and gloom to a more positive outlook (welcome to summer trading). Trader shrugged off news that Moody’s would delay conducting Italy’s Review, which is clearly warranted. This move could have a bigger effect when it actually is release. However for right now it highlights markets ignorance is bliss. Also in Europe market celebrated Greece’s complete ion of its three-year euro zone emergence loan program worth $70.8bn. While the immediate result is good the long-term outlook in our mind remains very uncertain. With crushing public debt at 180% of GDP and no effort for European creditors to put the Greece economy on solid footing, opting rather to get paid, the outlook feel worrisome. Yet for right now we remain constructive that Euro will move higher while USD will continue to decline.
Aussie optimism
The Reserve Bank of Australia confirmed in its August Meeting Minutes that it is not expecting to raise its Official Cash Rate, given at 1.50% since 8 February 2016. The RBA sees improvement in unemployment, income growth and inflation. Inflation and unemployment forecasts are estimated at 2.25% (2018: 1.75%) and 5% by 2020. Current monetary policy should continue to support growth. However, recent drought conditions affecting crop harvests is a serious factor to monitor, as farm output and export forecasts are reduced. Additionally, uncertainties surrounding US trade policies remain a serious impediment. The Aussie was little changed. Currently at 0.7358 USD, the AUD/USD pair is expected to strengthen, heading along 0.7370 in the short-term.
