FX Trading focus: EURUSD remains in limbo, Oil-linked currencies reverse recent losses
EURUSD has backed up just enough to encourage the idea we have seen a reversal by poking at the 1.1750 area, but as I wrote yesterday, we would still like to see a go above 1.1800 post Fed Chair Powell’s speech on Friday for a sense that the USD is weakening more broadly. The euro remains very passive here as we await developments in Europe to suggest there is any pulse of interest. The German election is the next step there. Flash August PMI’s yesterday from Europe were certainly supportive enough (but Bund remain firm as yields limped back lower after yesterday’s brief flash in the pan rise – a dysfunctional market). But in the UK we saw a fairly large miss on the services side in the UK (55.7 vs. 58.7 expected) a similar pattern in the US (55.2 vs. 59.2 expected, which echoes the huge drop in the University of Michigan sentiment survey for the preliminary August figure).
It was the nearly five-dollar per barrel recovery in oil prices from recent lows yesterday and toda that has driven the biggest movers in the G10 currency space, NOK and CAD, which have largely fully reversed the extension of the sell-off – with EURNOK never having posted a new high before reversing lower, as seen in the chart discussion below. Elsewhere, AUDUSD, for example is not there yet – needing 0.7300-50 to suggest a reversal, while. I have a hard time reading the quality of the recent sentiment recovery move, but it could be on rather thin liquidity and is certainly unlikely to continue with anything resembling the current momentum. Jackson Hole, meanwhile, while it may fail to present a hawkish message, will have a hard time adding further support to the market at its current levels and the market may begin to fret the forward trajectory of the economy rather than central bank moves that could prove irrelevant in the near term anyway, as I discuss below.
The Scandies have enjoyed this comeback in risk sentiment and stirrings out of optimism in Chinese markets and hopes for eventual stimulus there may be a further help at the margin. For EURNOK, certainly, this latest resurgence in oil prices that has gone a long way to reject the price break lower helps offer the sense that, barring any new general meltdown in sentiment, EURNOK has avoided a further squeeze risk and may be ready for a try below the 200-day moving average on a further boost to oil prices and hopes for the global growth outlook – but first, we’ll have to see if the 10.36 area support falls and eventually the 200-day moving average near 10.29.