Dollar apparently needs easing of tensions

On Monday, FX traders still had to navigate a series of uncertainties, both economic and political in nature. Even so, the moves in the major dollar cross rates were confined to established ranges. The focus stayed on the US-China trade tensions and on the rift between the US and Saudi-Arabia on the disappearance of journalist Kashoggi. The USD proved again vulnerable to these topics. On the eco side of the story, US retail sales weren’t really convincing. EUR/USD retested the 1.16 area and the trade-weighed dollar slipped to the 95 area. US equities held in negative territory for most of the session, but there was no obvious link with the dollar. EUR/USD finished the session at 1.1570 (from 1.1560). USD/JPY lost some further ground on global risk off to finish at 111.77. This morning, Asian equities mostly show modest gains with China underperforming. The jury is still out but rumours/headlines suggests that the US and Saudi Arabia are looking to avoid and escalation of the tensions. The dollar is trading marginally stronger. USD/CNY (6.9250 area) is holding near the recent top. EUR/USD trades around 1.1570. The kiwi dollar (NZD/USD) profits from higher than expected Q3 CPI data. Later today, ZEW economic confidence will be published in Germany. In the US, the production data and the NAHB housing indictor will be published. The data will probably only be of intraday significance for USD trading. Global sentiment will remain key for FX trading. Of late, we adopted a neutral bias on the dollar (EUR/USD). We still see no clear trigger for EUR/USD to break out of the 1.1432/1.1815 ST range. If geopolitical tensions were to ease and if equities would finally show some tentative signs of bottoming, higher US yields might also provide some support to the dollar in a day-to-day perspective.

Yesterday morning, sterling declined as EM-UK Brexit talks this weekend ended in a stalemate. However, the reaction was modest. EUR/USD settled in the low 0.88 area as FX traders awaited the next political developments. Today, UK labour data will be published. Wage data always have market moving potential. However, the focus remains on Brexit ahead of the EU Summit later this week. EU policy makers are likely to repeat that a deal is possible. However, of late, sterling traders reacted modestly to ‘brexit noise’. Sterling probably needs ‘hard news’/concrete steps for a real direactional move. Unless that happens, more technical driven wait-and-see action might be on the cards.

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