Dollar holding tight ranges

KBC Market Research Desk KBC Bank

Yesterday, EUR/USD trading showed two faces. European markets initially tried to decouple from a hesitant sentiment in Asia, supported by a further improvement of the investor assessment on Italy. European equities opened in positive territory and EUR/USD filled offers north of 1.1640. However, optimism faded soon and EUR/USD slipped below 1.16. Eco data in Europe (ZEW confidence) and the US (NFIB small business confidence) were better than expected but ignored. A rebound of US equities had no clear directional impact on the dollar. Global USD trading is still holding rather tight directionless ranges awaiting news from pending trade issues and keeping an eye on EM developments. The US 2-yr yield setting new cycle highs helps putting a floor for the US currency. EUR/USD closed at 1.1606 (from 1.1594). USD/JPY finished with a modest gain at 111.63. Overnight, Asian equities still underperform the US, showing modest losses. EM stress still lingers with the INR setting a new low against the dollar. Most USD cross rates including the trade-weighted dollar (DXY) and EUR/USD are holding within established ranges. Today, the eco calendar remains thin. EMU production (expected soft) and US PPI prices are usually no market movers. Fed speakers and the US 10-y auction are wildcards. The Fed will also published its Beige book preparing the September 26 Fed meeting. Of late, the USD, including EUR/USD, mostly held tight ranges. Ongoing trade tensions or EM stress were only a temporary support for the dollar. EUR/USD is blocked in a tight 1.1520/ 1.1750 consolidation pattern. We still see no trigger to unlock this stalemate short term. USD traders are awaiting a new trading theme or high profile eco news.

Recently, sterling rebounded off recent lows as markets anticipated the EU and the UK were making progress on reaching a brexit deal. Remarkebly, yesterday sterling didn’t profit from stronger than expected wage growth. This morning, headlines suggest that the EU and the UK are preparing to sign some kind of brexit deal at a November summit. For now, there are no meaningful further sterling gains. Markets, including sterling, apparently stay cautious as the internal division on brexit in the conservative party isn’t solved yet. We maintain the view that ‘real’ brexit progress is needed to justify a sustained comeback of sterling.

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KBC Market Research Desk

KBC Bank

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