Was that the USD top for now?

The market narrative: the US dollar looks somewhat loosely correlated with risk sentiment in US equities and positive expectations on trade deal prospects. On that note, we got the US-UK trade deal which is a hodgepodge of carveouts that on balance benefit the US somewhat more and leave many important areas unaddressed, like digital services and regulatory standards on food, etc. More interesting than the terms is simply the fact that the UK agreed to move forward with this kind of deal, as it is in complete violation of WTO rules, a recognition that we are in a new era of bilateral relationships with profound implications. And now we have the EU moving ahead with proposing tariffs on a EUR 100 billion in US imports as well as threatening to launch a dispute with the US at the WTO. This will not go well if the EU goes down that path – the WTO is no longer relevant in this new era. Is the EU really ready to start a trade war with the US? Traveling this path will eventually sow massive discord among EU members.

Looking ahead, the next key event risk is the US-China trade discussion in Geneva starting tomorrow. US Commerce Secretary Lutnick said that negotiations will take far more time with South Korea and Japan – two strong US allies in national security terms. Given the testy US-China relationship and the complexity of the situation, how can we expect anything specific, much less anything strongly on the positive side this weekend? Still, let’s watch closely for how the “tone” of the discussions is spun, whether positive or negative.

BoE and other CB’s yesterday. The Bank of England drove a brief bout of sterling strength yesterday on the two dissenting hawks that were not anticipated (certainly not by me) and short UK rates jumped 10 basis points in the immediate wake of the decision. Sterling can continue its recent strength if we continue to rally into the sky in UK and global equities, but would likely face headwinds in the crosses if we see another bout of equity market selling. The 0.8450-0.8500 area in EURGBP is pivotal. “Other CB’s” includes Sweden’s Riksbank, which tilted dovish as I anticipated, but failed to see any reaction in SEK. The Norges Bank simply recycled language on cuts later this year.

FX Board of G10 and CNH trend evolution and strength.
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The latest USD surge has further reduced the strength of the US dollar bear trend, while the JPY comeback short circuited further yesterday, keeping the outlook murky there (more global risk aversion probably the key ingredient needed for JPY strength).

Table: NEW FX Board Trend Scoreboard for individual pairs.

EURGBP is on tilt for flipping to a negative trend according to our trend indicator (which will turn negative at current levels if we close near here today), but technically it is in no-man’s land in the 0.8450-0.8500 zone as discussed above. Note that AUDNZD is close to the tipping point of establishing a new uptrend.