The G-10 rundown
USD – the US dollar taken to the last bits of support in a number of pairs – more USD liquidity from stimulus and rising expectations of a Biden win and the deeper negative real US rates that this might bring on a heavier dose of fiscal stimulus are theoretically USD negative, but if spiking US yields spike risk sentiment, the USD bears could be in for a rough ride tactically.
EUR – EURUSD has tickled the 1.1800 level, arguably the local bull-bear line for the pair and a key for the broader USD outlook. The services PMI revisions for Europe were positive for Germany, but even worse for Spain at a terrible 42.4 as piecemeal shutdowns are threatened there. The only argument for euros is that they will hold their value because more cautious fiscal in Europe together with demographics will keep the negative real rate threat lower than elsewhere.
JPY – hard to argue in favour of the yen if yields spike further, but as long as the spike is isolated to the US on fear of negative real rates, the stronger JPY story could re-emerge if risk sentiment wobbles here. So many JPY crosses resemble their USD counterparts (EURUSD and EURJPY, for example) and would expect that to continue.
GBP – sterling poised for good news, which the market seems to be leaning for as we await the key headline announcing some breakthrough in post-Brexit transition period negotiations. Still have long term doubts on the height of the ceiling for sterling due to the UK’s structural deficits, but a sterling surge on finally getting the Brexit issue in the rear view mirror is likely in the cards..
CHF – nothing to report here, but watching with interest on whether yield move continues higher and drives weakness at the margin. EURCHF 1.0600-1.0900 is the limbo zone for the franc and has been since June.
AUD – the RBA looking for ways to bring further easing if needed, but happy where it is at present and already hopeful that the unemployment rate peaks at a lower level than previously feared. AUDUSD has found resistance again at the pivotal 0.7200 area as noted above.
CAD – CAD failed to react much to the very strong surge in WTI crude yesterday as USDCAD sits at a local tactical pivot area of 1.3250 – the pair looks passive and low-beta to the USD direction.
NZD – in NZDUSD terms, we have been coiling and coiling since July – the clearest level at the moment there is the 0.6500 area, which could set up a run towards 0.6400 if the USD puts on a rally again. The AUDNZD cross is lost in the desert, but downside pressure risk towards 1.0600 perhaps weighs more as long at 1.0850 isn’t retaken.
SEK – EURSEK needs a positive news in Europe and another surge in risk sentiment to punch back down through the 10.40 pivot area and suggest an end to upside risk. Right now - in limbo between recent top and that 10.40 area.
NOK – a nice rebound in crude oil gives the NOK a shot in the arm and if positive risk sentiment continues here, we could see a full return to the 10.50 area in EURNOK. The CPI rise and implications for negative rates looks scary until we consider that it is mostly FX-driven as the trade-weighted NOK is some 8% below where it was a year ago even after the comeback from the spring-time lows.
Upcoming Economic Calendar Highlights (all times GMT)
- 1230 – Canada Aug. Int’l Merchandise Trade
- 1300 – ECB President Lagarde to Speak
- 1400 – US Aug. JOLTS job openings
- 1440 – US Fed Chair Powell to peak