FX: It ain’t looking pretty

Chris Turner ING Economic and Financial Analysis

USD: Nationalist tone in US-China trade war is worrying

Chief Investment Officers must be considering more defensive strategies right now. It has not been a bad year for asset market performance, with the MSCI World equity index up 13% and some common bond indices up 2-3%. But now faced with: a) an escalating US-China trade war taking on some unedifying nationalist tones, b) oil rising on supply concerns as Iran is backed into a corner in the Middle East and c) a late cycle US economy, investors will be focused more on preserving capital. This dark mood is playing out in the FX space, where any rallies in commodity currencies quickly fizzle and USD/CNH is the focal point for US-China trade tension. USD/CNH has traded as high as 6.9450 today and were it to hit 7.00, alarm bells would ring even louder around the world. It would be a surprise if equity markets were to hold onto this week’s recovery and the safe havens of the US dollar, Japanese yen and Swiss franc will continue to outperform. Our preference remains the yen here, given our concerns that the S&P 500 could turn lower again. It’s a light day for US data, just US consumer sentiment, and we’d expect risk assets to stay fragile as the market awaits the next response from China. DXY to trade 97.50-98.00, but watch out for fresh losses in USD/JPY.

EUR: European elections merely add to the soft EUR environment

Trade wars are exacerbating deflationary trends and leaving the euro under pressure. The pressure from the external environment is being compounded by electioneering ahead of the 23-26 May European elections – especially where Deputy Italian Prime Minister Matteo Salvini wants to model himself on the rule-breaking Donald Trump. Expect to hear more of this over the next week. Broad pressure on emerging market FX is also leading to broad dollar demand, which typically pressures EUR/USD. Look for EUR/USD to move to 1.1110/30 and EUR/CHF to cause more headaches for the Swiss National Bank down at 1.1200.

GBP: Much more political uncertainty

Given the prospect of: (a) A Tory drubbing in European elections, (b) May’s Withdrawal Deal being rejected for a fourth time in early June and (c) a formal leadership contest starting shortly thereafter, we doubt investors will want to go anywhere near the pound. There is also a lot of room to re-build speculative GBP shorts after these were completely unwound over the last six months. Cable -> 1.2670.

TRY: Improving US-Turkey relations

Recent speculation over improving relations between the US and Turkey was given some support yesterday when the US cut its tariffs on Turkey’s steel imports to 25% from 50%, unwinding the increase from last August. At the margin this could provide some relative support for the Turkish lira.

Read the original article: FX: It ain’t looking pretty

Author

Chris Turner

ING Economic and Financial Analysis

Chris is Head of FX Strategy at ING. Together with his team, he provides short and medium-term FX recommendations for ING’s corporate and institutional client base.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.