Dollar eases of recent top
|There were multiple topics with potential to move global FX/USD trading yesterday, including EMU and US data, Brexit, Italy, the oil price, global equity volatility and, last but not least a speech of Fed chairman Powell. The dollar slightly outperformed early in the session, but lost momentum later. US CPI and wage data were a bit softer than expected. UK PM May surpassing a first hurdle in the Brexit process also could be considered a tentative euro positive. That said, there was again no unequivocal directional trend in the dollar, with several ‘erratic’ intraday swings. EUR/USD finished the day at 1.1310. USD/JPY closed at 113.63. In a speech overnight, Fed Chairman Powell was pleased with the current state of the US economy, but admitted that there are risks to (global) growth. For now, there is little reason to change expectations on the Fed rate hike path. The reaction of the USD is limited. Asian equities initially traded soft but currently mostly show modest gains. The Aussie dollar is propelled by yet another strong labour report. AUD/USD is changing hands in the 0.7275 area. A tentative easing of global market tensions is maybe a slightly negative for the dollar. EUR/USD trades in the 1.1135 area. USD/JPY also fails to profit and trades near 113.50. Later today, several ECB and Fed governors will speak. The US eco calendar is well filled with the Empire manufacturing survey, the Philly Fed business outlook, retail sales and the jobless claims. US data are expected constructive/solid and we have no reason to expect really negative surprises. Oil and global market sentiment remain wildcards. For now, the impact of both factors on the dollar is ambiguous. The usual inverse correlation between the dollar and oil isn’t that strong on a daily basis. Yesterday, we had a neutral bias on the dollar (EUR/USD), expecting more erratic trading in the 1.11/1.15 trading band. We maintain that view. In somewhat longer perspective we see more downside risks in EUR/USD due to ongoing eco divergence and potential event risk.
Yesterday, PM May defended the text of an EU-UK Brexit deal at Cabinet meeting. The UK PM at least surpassed this hurdle. The market reaction was modest as investors realize that the ultimate battle will be fought in Parliament, probably early December. The outcome remains highly uncertain. Today, UK Oct retail sales are expected modest (0.2% M/M) despite a poor September reading. We stay neutral on EUR/GBP. After the recent rally, market positioning probably became more neutral (less sterling short). So, further GBP-gains might be modest.
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