Head of FX Strategy
The G-10 rundown
USD – rather firm and could firm further if the attention on EM woes picks back up. Also interesting whether the July US PCE inflation up today surprises either way and how much the market chooses to react after Powell dismissed the risk of accelerating inflation at his recent Jackson Hole speech.
EUR – good news on the trade front as the EU as Politico runs a story suggesting the EU is willing to lower car tariffs. Have a hard time seeing what takes EURUSD beyond recent highs for any sustained period of time without euro-positive news.
JPY – the yen weaker still yesterday, but to sustain a real sell-off we need to see global bond yields come to life and they have been so moribund for so long that confidence is low that anything beyond a poke at the limits of the longer-term ranges is afoot.
GBP – an enormous bounce yesterday from new cycle lows versus the euro and Swiss franc – looks very technically promising and further signs of hope that UK is inching toward a deal could shift sentiment, with plenty of speculative positioning fuel to drive short-covering.
CHF – EURCHF likely bottled up in a range until or unless the Italian sovereign yield situation either improves or deteriorates. Somewhat surprising we didn’t get any isolated CHF downside on the positive Brexit headlines. USDCHF beginning to look technically oversold.
AUD – not usually data that is closely tracked, but the private capital expenditures and building approvals releases overnight brought no joy. AUD looks rather heavy given the reasonably supportive backdrop of the last few sessions.
CAD – market awaits Canadian GDP data tomorrow and CAD longs are hoping for positive trade headlines as Canada seeks to get in on the trade deal terms set between the US and Mexico, effectively replacing NAFTA. The US side is pressuring for a deal ahead of the weekend, so the last session for the week looks pivotal for USDCAD.
NZD – the ANZ Business Confidence and Activity Outlook survey shows both gauges plumbing new post-global financial depths. It appears businesses have concerns on the government’s policy roadmap, including the risk of a higher minimum wage and the inability to pass costs along to customers.
SEK – finally, cracks appear in the EURSEK rally after the one-way traffic of the last couple of weeks. We still like the idea that that the market is over fearful of the September 9 election outcome and the pair could trade back in the range toward 9.25 in the weeks ahead if the centre holds and SD manages a sub-20% result at the upcoming election. Still, extreme volatility risk remains if that proves too complacent a view and the huge disagreements in the polls are driving the recent uncertainty.
NOK – a bit stronger, perhaps in sympathy with the SEK bounce, but also as oil prices are nearing the cycle highs again. EURNOK rally looks overdone.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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