A more protracted hit to USD sentiment now seems the most likely outcome as the Trump – Comey controversy takes a sharp turn for the worst.
USD & JPY
- The appointment of a Special Prosecutor by the Justice Department is perhaps the strongest response relative to appointing an Independent Commission or Special Congressional Committee as he has the power to prosecute and recommend impeachment proceedings, rather than just report on findings.
Strategy: Watch weekly close of the Dollar Index
- USD: The Dollar Index (DXY) has hit US election lows at 97.50 (down more than 1.5% over the past 48 hours) with JPY overtaking EUR as the prime beneficiary of USD weakness while EURUSD has rallied towards 1.1160. With DXY unlikely to rebound soon, the prospects for a further drop put 110.60 support in USDJPY as the initial target, a break of which beckons 108.50 – 109.50 while EURUSD eyes targets to the 1.1250 – 1.13 area.
- Both EUR and GBP (approaching 1.3000) remain beneficiaries of the weaker USD.
- Sterling is also taking a cue from the UK jobs report. Wages growth including bonus payments edges up 2.4% 3M/YY in March, up 0.1pp compared to February and in line with 2.4% consensus expected.
Strategy: Position for positive EUR sentiment against the crosses
- EUR: EURUSD also benefited from ECB optimism eyeing 1.1250 – 1.1300 resistance. With JPY now seen as the prime beneficiary of USD weakness however as the US political crisis gives way to full blown risk aversion, crosses such as EURJPY are now also vulnerable to some reversal.
Strategy: Commodity bloc continues to underperform euro bloc and JPY
- While commodity FX is currently supported by USD weakness, the bloc as a whole is decisively underperforming JPY and the euro bloc with AUD once again the laggard against the rest of G10 FX and within the bloc itself (further weakness versus NZD & CAD).
This is an extract from the Daily Currency Update, dated 18 May 2017. Please approach a Citigold Relationship Manager if you would like more information.