USD facing mixed signals
|On Friday, global (equity) markets entered calmer waters, but it didn’t provide a clear directional bias for global FX/ trading. The dollar recently failed to profit from market turmoil. The US dollar on Friday was still looking for a clear trend as sentiment improved, at least temporarily. USD/JPY hovered in a relatively tight 111.88/112.50 sideways range. EUR/USD tested the 1.16 area early in the session, but the US currency finally regained some traction as US equities rebounded and as Fed’s Evans reiterated that the Fed might have to raise the policy rate above the neutral rate as the economy continues to perform strongly. Even so, EUR/USD remained within in the established ranges. The pair finished the day at 1.1560 (from 1.1593). This morning, Asian equities fail to build on Friday’s rebound in the US, recording losses of 1%, or even slightly more. Comments from US policy makers this weekend suggest that trade relations between the US and China haven’t improved yet. The valuation of the yuan remains a source of dispute. Investors are pondering the potential impact of ongoing trade frictions on growth. For now, the impact on the USD is modest. USD/CNY trades little changed in the 6.92 area. The yen records modest gains. USD/JPY is testing the 112 big figure. EUR/USD is also little changed in the 1.1550 area. Today, US eco calendar contains the Empire manufacturing survey and retail sales. September sales are expected solid (0.6% M/M). Question is whether solid US eco data will help to restore confidence on US/global equity markets. At least for now sentiment looks still fragile. Of late, we left our ST USD positive bias and turned neutral on EUR/USD. The pair rebounded off the 1.1432 correction low. Italy remains a source of uncertainty as the country presents its budget to the EC. For now, we see no clear trigger for the EUR/USD to break out of the 1.1432/1.1815 ST range. We look out whether the dollar comes under pressure again if the correction on (US) equity markets were to resume.
Sterling lost slightly ground Friday, after a good rebound due to brexit hopes earlier last week. During the weekend, negotiations between UK’s Raab and EU’s Barnier couldn’t solve the issue of the Irish border ahead of this week’s EU summit. This failure weighs on sterling this morning. However, the damage is not excessive. EUR/GBP trades in the 0.88 area. The news might be slightly negative for sterling, but we expected sterling traders to keep a wait-and-see bias.
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