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FX

Trump Signals Turning USD Positive

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USD remains bid overnight as Trump is presented with possible options on tax reform from NEC head Gary Cohn while also telling senators he still expects a deal to repeal Obamacare to go through.

 

USD & JPY 

Strategy: Markets starting to return to buying USD on dips: 

  • USD: The USD Index has bounced strongly off its lows with support at 97.75 – 98.50 holding rock solid and which potentially puts a more solid floor in USDJPY at 108.25 – 109.5 to target 116 - 118.00 as the heavy buying of JPY seen last week versus the negative positioning in USD for the first time since Sep’16 sits at odds with the relative stance of the Fed versus BoJ.

 

EURO BLOC

  • EUR: EUR takes a hit as Reuters reports ECB sources see recent messages from the ECB as intended to communicate reduced tail risk and not steps toward exit and the signals from the ECB’s March statement are “way over interpreted”. As a result, policymakers are now wary of making fresh policy messages for fear of potential yield surge.
  • EUR: On a more positive note, former French PM Valls says he would vote for Emmanuel Macron in the coming presidential election, the biggest Socialist party name to date to turn his back on its official candidate and back the centrist instead. EUR however ignores the news.

Strategy: EUR’s tactical reversal seen across the board for now: 

  • EUR: EURUSD tops just below 1.09 and crosses back down from stretched levels, reacting to the more dovish overtones from the ECB. On the topside,1.0877 now represents key resistance while support is now seen at 1.0672-1.0684, followed by 1.0458/1.0523 though we would need to see a close below 1.0720 to get a bearish weekly reversal.
  • EUR/ Crosses: Underperformance on crosses puts 0.8581/0.8602 support in EURGBP back under the spotlight and given the current momentum driven play, could also see EUR weaken against AUD to sub 1.4010.

 

COMMODITY BLOC

Strategy: AUD’s overnight gains linked to domestic bond index extension – unlikely to sustain:

  • AUD: AUD’s comeback overnight appears to be for the most part linked to foreign buying of AUD bonds driven by a large index extension at month end. That said, there is little to suggest overall sentiment has changed. The only exception to AUD underperformance right now are probably EURAUD where positioning and the ECB’s bid to correct its message to less hawkish overtones potentially sees some downside adjustment to the cross before renewed EUR buying and AUDJPY where renewed JPY weakness as the USD correction ends, could see the cross moving higher.
  • CAD: With WTI renewing its surge overnight from $48.60 to $49.60, Citi analysts sees near term targets closer to $52.15 as long as $47.58 holds. With CAD correlated to oil, this adds to support for CAD especially against AUD.

 

ASIA EMERGING MARKETS

  • Citi sees no change in the slope, width or center of the SGD NEER band as incoming data remains supportive of MAS’s view that external demand has seen a mild step-up. As a result, a further easing of monetary policy would seem inappropriate given expectations for a recovery in headline GDP. That said, Singapore’s output gap still negative, domestic demand and a weak job market sees the current mix should as sufficiently stimulative at this stage.

Strategy: SGD still a "sell’ at sub 1.4000 versus USD

  • SGD: Daily momentum has not been this stretched to the downside since June last year when USDSGD turned up and the overall move down looks like it is on it is last legs, if not over already.

 

This is an extract from the Daily Currency Update, dated 30 March 2017. Please approach a Citigold Relationship Manager if you would like a copy.

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