Head of FX Strategy
Summary: The greenback is breaking back higher tactically against the commodity dollars, possibly on fears that the market has been too confident in the hopes of a US-China trade deal. Regardless, the tactical reversal in the USD outlook will look fairly decisive if the currency closes on a high note after rallying all week.
The US dollar just kept grinding higher today after doing the same all week, and it is interesting to note that it did so both in an environment in which US-China trade deal hopes were picking up into mid-week, and over the last couple of sessions, where at least a strong shadow of doubt was cast over those hopes. The USD upside has been most significant technically versus CAD and NZD this week, but AUDUSD bulls have to be disappointed as well. Below, we once again mostly focus in on USD pairs, but also bring an update for EURSEK, as the pair frustrated momentum traders once again today.
EURUSD – bulls in retreat – last gasp is 1.1000 before cycle lows
After teasing the well-etched top of the range to end last week and start this week, the EURUSD super major has been letting out air all weak and at the time of our writing is a mere few pips away from the last real arguable line of support ahead of the cycle lows below 1.0900 in the 1.1000 area – both a key round number and the approximate location of the 61.8% Fibo retracement. A failure of 1.100 reinvigorates the strength of the mind-numbing, tight, slowly descending channel that has dominated since 2018.
USDCAD – downside threat neutralized?
Today could prove a local watershed development for this pair, which pulled higher through 1.3200 resistance in the wake of a very weak October jobs report on the heels of last week’s dovish guidance shift from the Bank of Canada. Given the miserable, rangebound existence of this pair over the last many months, it hardly inspires visions of greatness for bulls, but does suggest risk topside risk at least to the top of the range again if we hold reasonable above 1.3200 into the close today.
AUDUSD – rolling over again – “perma channel” to survive?
Disappointment all around for AUD bulls as US-China trade deal hopes are suddenly dampened at best and perhaps a little worse since I started writing this article as Trump says that the US hasn’t agree to full tariff roll-back. Even before this latest setback for trade deal hopes, it was disappointing that the recent local break higher of the 0.6900 area failed to blossom into more and the descending channel from back in 2018 has survived again. A hold lower below current level or arguably sub-0.6800 suggests a test of cycle lows again.
EURSEK – oh dear, here we go again
We’ve regularly updated EURSEK one of the more entertaining technical charts out there recently, and after we got a solid move back to the lows and even beyond, it looked promising for the bears, but alas the last bits of the range held and the 200-day moving average put in an appearance as well – a strong tactical disappointment here for the bears and cementing that we are stuck in the range without a new positive catalyst for SEK.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
