USD/JPY nears the range top

KBC Market Research Desk KBC Bank

On Monday, the USD rally slowed. USD held close to the recent highs in a session devoid of important news. Risk sentiment was constructive, but the impact on the dollar wasn’t that obvious. EUR/USD traded sideways in a 1.0860/1.0900 range. A good EMU PMI helped to block the downside in EUR/USD. USD/JPY initially didn’t profit from the equity rally, but finally rebounded as core/US bond yields turned north later. USD/JPY closed the session at 104.18 (from 103.80). The 104.64 correction top remained intact.

Overnight, Asian indices trade narrowly mixed, despite a good close in the US. Japan outperforms as the yen remains relatively weak north of USD/JPY 104.
The trade-weighted dollar holds near a 7 month top. The US currency is still supported by gradually rising expectations for a Fed rate hike. Markets currently attach a probability of more than 70 % to a December rate hike. The rise of the dollar also weighs on the yuan. The off-shore yuan is setting new lows. USD/CNY (on-shore yuan) trades at 6.7760, the weakest level for the yuan since September 2010. The global moves again have only limited impact on EUR/USD with the pair holding in the 1.0880 area.

Today, French business confidence (102) and the German IFO business confidence (109.6) are expected to have stabilized in October. Yesterday, the German PMI was strong following a decline in September, but the IFO jumped already sharply in September. An upward surprise is possible. Even if so, the reaction of the euro should be guarded. Mario Draghi speaks in Berlin on stability, equity and monetary policy. He will unlikely give strong hints on policy a few days after the ECB meeting. In the US, October consumer confidence is expected to have dropped to 101 from 104.1, a post crisis high. A decline looks more likely, but a less than expected setback /upward surprise can weigh on core bonds and support the dollar. Yesterday, the dollar rebound slowed (temporary?), but there was no real correction or profit taking. So, for now yesterday’s consolidation was a pause in an established trend. Markets continue to play the policy divergence beteen the Fed and the ECB after the ECB press conference. December Fed rate hike expecations put a solid floor for the US dollar. The ECB is expected to maintain a loose policy beyond March 2017, capping the topside of the euro. The dollar rally won’t continue forever, but for now interest rate support causes by default USD buying. There is no reason to row against the USD positive tide, especially not in EUR/USD.

From a technical point of view, EUR/USD finally dropped below 1.0952/13 support. The break is a further USD positive and opens the way to next intermediate support (1.0822/1.0711). USD/JPY struggles to break north of 104.32/64. A break would paint a double bottom formation on the charts with targets in the 108/109 area. We stay cautious on sustained USD/JPY gains beyond the 104.32/65 resistance especially as global volatility/uncertainty intensifies. A new test of the recent highs looks to be in store.

Sterling: consolidation continues

On Monday, trading in the UK currency was order driven and technical in nature, as eco data were ignored. . The CBI data were mixed. Businesses see a rise in external competitiveness due to the weaker pound. There were also tentative signs of an improvement in investment intentions, but October orders disappointed. EUR/GBP held a tight sideways range around the 0.89 big figure The pair closed the session 0.8992 (from 0.8900). Cable closed the day at 1.2238 (from 1.2234).

Today, the UK calendar is empty, but BoE’s Carney appears before the House of Lords Economic Committee. Markets will look for clues on the BoE’s short-term policy intentions. If the BoE governor turns a bit more neutral on the timing of further easing, it might be slightly supportive for sterling in a daily perspective.
Political comments on the Brexit diminished allowing Sterling to enter calmer waters last week. This might continue short term. The UK currency even rebounded slightly as markets assume that more Parliamentary involvement reduce the risk of a hard Brexit. However, we don’t expect this rebound to go far. We look to sell sterling on more pronounced up-ticks. EUR/GBP 0.8725 remains a key reference.

Download The Full Sunrise Market Commentary Currencies

Author

KBC Market Research Desk

KBC Bank

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.