- USD on the defensive due to political turbulence around Trump
- EUR pressing higher across the board
- EURUSD suddenly challenging highs of the cycle and pivotal 1.1000 area
- JPY enjoying relative strength
Trump's political woes show no sign of vanishing. Photo: Shutterstock
By John J Hardy
US President Donald Trump has stepped in it once again. He is reported to have discussed highly classified information from an ally in the fight against ISIS with the Russian foreign minister and Russian US ambassador without clearing his actions with the source of the information.
Trump’s stumbles and the unified attack from the Washington establishment and media continue to erode expectations that the Trump trade will ever materialise in size or force any time soon, and the non-stop political turmoil in Washington is wearing on the greenback. This comes against a backdrop of weakening US data surprises, with Friday’s CPI pushing US rates lower all along the yield curve.
Elsewhere, the euro remains strong, and EURUSD has reversed course from last week’s dip and is suddenly challenging the highs of the cycle and the pivotal 1.1000 area as US-Europe 10-year rate spreads have tightened to the narrowest since just after the US election.
But the strongest currencies now are to be found in the higher-yielding emerging markets, as Trump’s troubles have failed to spill over into any more generalised concerns. It seems we’re back to the latest version of “the goldilocks trade”, as US data is sufficiently weak to keep Fed expectations low, but not weak enough to trigger risk aversion. This encourages higher equities, complacency and carry trading. After the latest Opec-induced oil rally, the star of the moment is the Russian ruble.
EURUSD pushing on the recent highs for the cycle above 1.1000, as the USD stumbles and the euro surges in a rebound after the “sell-the-fact” reaction to the French presidential election. The next levels, if EURUSD is able to separate from the pivotal and historically sticky 1.1000 area, look like the 61.8% Fibonacci up toward 1.1130 and then the full extent of the old range into 1.1500. It will take a considerable reversal bar from current or slightly higher levels for the bears to have a fresh technical hook for a downside view.
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Source: Saxo Bank
The G-10 rundown
USD – Trump is to meet Turkey’s Erdogan, and it will be interesting to see if this leads to any embarrassing exchanges, not long after Trump made noise about arming Kurdish YPG forces in the fight against ISIS. The US data calendar this week is rather thin, so unsure of the next USD catalyst unless, miracle of miracles, Trump manages to reboot.
EUR – The euro is doing well despite its very low yield in carry trading on continued relief from the French election, though this is failing to drive any further tightening of peripheral spreads. US futures positioning reports have shown a net speculative long of over 22k contracts, the first net long in almost exactly three years.
JPY – JPY is enjoying relative strength as rates have eased a bit lower, but nothing notable as risk appetite is high at the same time. The next key support is some ways off in USDJPY in daily Ichimoku cloud terms.
GBP – sterling is marginally higher against the USD, but mostly only due to the greenback’s weakness, while EURGBP shows that the sterling is under the euro’s thumb and pushing close to the highs from April, perhaps on the general sense that Macron's victory isolates the UK further in the Brexit process. Important UK data this week include today’s CPI and the earnings and employment data tomorrow.
CHF – the focus on carry trading and afterglow of the French election are keeping the franc under pressure, but the Swiss National Bank sight deposit data from yesterday was discouraging, showing another couple of billion francs of growth. Outflows needed to argue for notable CHF weakness! The next key test is the 1.10+ area in EURCHF.
AUD – the Aussie has somehow mustered some relative resilience here even as iron ore prices struggle at low levels and the Reserve Bank of Australia minutes overnight were not particularly inspiring, as RBA watchers continue to fret about jobs and housing and short yields in Australia continue to march to new lows for the cycle. The key resistance zone for AUDUSD remains 0.7450-0.7500.
CAD – 1.3600 is an important support level for USDCAD as this was the range high broken on the way up, but may not hold the line if oil stays up and the USD remains under pressure – may require retrenchment toward 1.3500, perhaps the key bull-bear line.
NZD –the kiwi remains in no-man’s land versus the USD after the recent dovish broadside from the Reserve Bank of New Zealand. Hard to see anything moving and shaking here unless we get a very specific kiwi catalyst or broader volatility picks up. AUDNZD looks supported after the recent rejection of the run lower.
SEK – the focus on carry trading keeps SEK out in the cold, though we suspect any new highs will be of the choppy, temporary type without new news. The Riksbank is to publish an “Opinion on inflation target variable” this morning at 0730 GMT and governor Ingves is out at 1030 GMT speaking.
NOK – oil strength is only taking NOK so far as support has developed in EURNOK above 9.30, and this puts the pivot area lower in 9.35-9-25 for now.
Upcoming Economic Calendar Highlights (all times GMT)
- 0730 – Sweden Riksbank to publish Opinion on Inflation Target Variable
- 0830 – UK April CPI
- 0900 – Germany May ZEW Survey
- 0900 – Eurozone GDP
- 1030 – Sweden Riksbank Governor Ingves to Speak
- 1230 – US April Housing Starts and Building Permits
- 1315 – US April Industrial Production and Capacity Utilization
- 1530 – ECB’s Nowotny to Speak
- 1800 – ECB’s Coeure to Speak
— Edited by John Acher