Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Fresh USD breakdown as US on holiday.
John J. Hardy
Global Head of Macro Strategy
Summary: The greenback is breaking down again. To keep the shine on the USD bearish case, this move needs to hold here. A lot of focus has been on EURUSD as it traded above 1.1400 for the first time in almost a month overnight after Trump’s latest tariff threats against the EU. But the greenback is already hitting new lows for the year elsewhere, against CNH and most of the G10 small currencies.
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Latest market moves:
We have a UK and US holiday today, which means that two of the largest finance centers are closed for business until tomorrow, but we’re seeing plenty of action in FX after Trump threatened 50% tariffs on EU imports Friday, to be assessed on June 1, only to delay those threatened tariffs to July 9 last night after a “good call” with the EU’s Ursula von der Leyen. That July 9 date is presumably the date on which the US will announce its tariff levels against everyone after the 90-day delay announced on the original Liberation Day tariffs in early April.
It's interesting to note that the USD fell on Friday on Trump’s fresh tariff threats and fell even more overnight on the news that this latest threat would be delayed. That suggests that USD direction isn’t particularly dependent on Trump-driven tariff headlines, which offers USD bears some further confidence here. And the USD weakness is broadening out more than previously, as many of the smaller G10 currencies are hitting new highs for the year against the greenback. Still, it’s tough to gauge the quality of the move with US markets closed today – important therefore for this move to hold through the US session tomorrow to keep the shine on the USD bearish case.
USDJPY failed to follow the plot overnight after its recent sharp drop, as the JPY was generally even weaker than the USD overnight, suggesting that the JPY is perhaps a bit more sensitive to risk sentiment (and global yields rebounding on Trump delaying the threatened EU tariffs.)
Chart: AUDUSD
AUDUSD has pulled to new highs for the year overnight, perhaps supported by China allowing its currency to move to new highs for the year against the greenback as well. The move comes after a remarkably shallow consolidation that came in the wake of the Trump Liberation Day meltdown and recovery. If the 0.6500 area holds here, there isn’t much in the way of resistance until the descending trendline from the 2021 highs and then the range resistance at 0.6942. If this move is just a squeeze and the price action gets crushed back below the 0.6450, it’s back to the drawing board for USD bears here.
See my Friday update for the calendar week ahead, which I don’t see as offering any event risks that change the narrative, though the RBNZ meeting could be important for NZD, particularly for the AUDNZD cross after the recent rally fell short of challenging the pivotal 1.0925-1.1000 zone (CNH and copper and other commodity prices are more important in my book than the RBA’s recent dovishness) . One event not on my calendar is Nvidia’s earnings report after the US market close on Wednesday, which does have the potential to impact risk sentiment in either direction. There is also a “US exceptionalism” angle if Nvidia’s results and outlook are particularly positive or negative.
The weak ahead
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
Some further extension in what we discussed Friday, as USD weakness intensifies and NOK continues to lead the pack. The Euro and the yen are very flat in broad terms. Note the momentum shift in AUD over the last two sessions (+0.9). Is something developing?
Table: NEW FX Board Trend Scoreboard for individual pairs.
Not much to point out here, but JPY crosses continue to fail to throw off a decisive directional signal (now chopping back higher after ending Friday on a weak note, etc.), The EURCAD pair has triggered into a new downtrend, but a glance at the chart shows it is still gyrating in a range and needs to show more momentum to suggest something afoot there.
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