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Currencies: Red Alert For USD


Sunrise Market Commentary

  • Rates: Some consolidation ahead of the weekend?
    Today’s eco calendar probably won’t impact trading, suggesting sentiment-driven and technical action. Underlying core bond sentiment remains negative and the comeback of stock/commodity markets adds to that picture. However, with the Bund and the US Note future entering oversold conditions, we’d argue in favour of some consolidation.
  • Currencies: Red alert for USD
    Dollar weakness prevails this morning. USD/JPY dropped below key support (106.52). EUR/USD tests the 1.2537 cycle top. The trade-weighted dollar (DXY) tests the cycle low (88.43) which coincides with the 62% retracement level of the dollar’s 2014-2016 rally. Red alert for USD!

The Sunrise Headlines

  • US stock markets closed with strong gains yesterday (+1.5%), marking a fifth straight positive day. Most Asian stock markets are closed for Lunar NY. Japan copies WS’s gains despite more yen strength.
  • Japanese PM Abe nominated Kuroda to lead the BoJ for another 5y term, with the Cabinet forwarding the nomination to parliament. Central bank insider Amamiya and professor Wakatabe were tapped to be deputy governors.
  • The US Senate failed to break its impasse over immigration after a week of debate as a flurry of unsuccessful votes left the chamber no closer to resolving the fate of hundreds of thousands of young, undocumented immigrants. (WSJ)
  • Two thirds of supporters of Germany’s SPD back forming a coalition government with Merkel’s conservatives, an opinion poll showed, while 78% of supporters of the conservatives back the coalition.
  • The RBA expects to make only gradual progress in reducing unemployment and having inflation return to its 2-3% target band, signalling interest rates will stay at record lows for a while yet.
  • The UK is ready to lay out its post-Brexit plan for the financial sector, favoring an ambitious "mutual recognition" model, the FT reported.
  • Today’s eco calendar contains UK retail sales, US building permits & housing starts and university of Michigan consumer confidence. ECB Coeuré is scheduled to speak.

Currencies: Red Alert For USD

Red alert for USD

The dollar remained under some downward pressure in Asia yesterday morning, but stabilized in Europe. Mixed US eco data had no impact. New US equity strength put the greenback again slightly in the defensive. EUR/USD closed the session at 1.2506. USD/JPY remains the biggest victim of dollar weakness with USD/JPY closing below the 62% retracement level of the mid 2016 to end 2016 rally (106.52). A confirmed break suggests complete retracement towards 99.02.

Positive risk sentiment and the dollar decline remain at play overnight. Several Asian markets are closed for the Lunar NY. Japanese stocks gain 1% despite a further decline of USD/JPY. The pair trades below 106 even if Japanese PM Abe confirmed Kuroda’s extension at the head of the BoJ. One of the newly appointed deputy governors is a proponent of QE and argued in favour of increasing asset purchases. Japanese FM Aso said that they are carefully watching FX moves and will act if needed. All yen-negative signals which the market currently ignores. Dollar weakness also translates in EUR/USD testing the 1.2537 cycle top this morning. The trade-weighted dollar (DXY) tests the cycle low (88.43) which coincides with the 62% retracement level of the dollar’s 2014-2016 rally. Red alert for USD!

The US eco calendar contains housing data and Michigan consumer confidence, but that won’t change the fortunes of the dollar. ECB Coeuré speaks. He wants to end APP in September 2018. Will he refer to current euro strength? The repositioning on equity markets and technical considerations are more important. Positive risk sentiment correlates with a further decline of the dollar. USD/JPY lost important support, while EUR/USD and DXY test key hurdles. A sustained break would signal more trouble for the dollar. We don’t see a fundamental reason for EUR/USD to already break this level, but this is not a good enough reason to row against the tide. The dollar is a falling knife.

EUR/GBP traded with a small negative bias yesterday, closing at 0.8858. UK retail sales are expected to rebound 0.6% M/M and 2.4% Y/Y after a sharp setback in January. We doubt that even better than expected data will be a big help for sterling. EUR/GBP holds the 0.8690/0.9033 range. We hold our view that the 0.8690 support won’t be easy to break without big progress on Brexit. UK PM May and German Chancellor Merkel hold Brexit talks in Berlin.

EUR/USD tests ST range top

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KBC Bank
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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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