- USD took a dive on Tuesday as the market grows anxious that the Fed has become increasingly dovish amid a weak global outlook and a strong easing bias from most central banks across the globe
- After trading sideways since the Brexit vote, EUR/USD is attempting to break the 1.1234 resistance level
- We believe that EUR/USD’s rise is mostly due to dollar weakness rather than a strong euro
- USD/JPY is now testing the following support area at between 99.02-100.60 and the technical structure suggests a long-term bearish outlook. The next key support can be found at 94.64
- AUD/USD is about to test the bottom line of its multi-year downtrend channel currently at around 0.7750 as it seems that only a pick-up in Fed rate hike expectations could help the RBA to depreciate the Aussie
-Despite ZEW July collapse to a 4-year low, in our view, the global slowdown is due to central bank policy easing
- We remain dubious that the ECB will succeed in further weakening the single currency through policy easing
- Fed won’t raise rates this year in our view, helping the EUR to depreciate slightly. We target EURUSD below 1.10 in the short-term
USD took a dive on Tuesday as market participants await the publication of July FOMC meeting minutes. The market is growing anxious that the Fed has become increasingly dovish amid a weak global outlook and a strong easing bias from most central banks across the globe. The greenback lost ground against all G10 currencies but fell the most against the Japanese yen, the Kiwi and the Aussie.
USD/JPY broke the bottom of its monthly range at 100.68 (low from August 2) and is now testing the following support area at between 99.02-100.60 (low from June 24, psychological level and Fibonacci 50% on 2011-2015 rally). Overall, the technical structure suggests a long-term bearish outlook. The next key support can be found at 94.64 (Fibonacci 61.8%).
Most commodity currencies extended gains overnight in spite of a stabilisation in crude oil prices. However, the strong rally in precious metals provides little help for the Aussie. Gold rose 0.70% in Tokyo and tested the $1,350 level, while the Australian dollar surged 0.45% to 0.77 against the greenback. The Australian dollar continued to trade on firmer footing in spite of a rate cut from the RBA in early August as investors are desperately chasing higher yields. The publication did not provide further clarity about whether the central bank would deliver another cut before the end of the year. AUD/USD is about to test the bottom line of its multi-year downtrend channel currently at around 0.7750. AUD/USD does have downside potential but it seems that only a pick-up in Fed rate hike expectations could help the RBA to depreciate the Aussie.
At the time of writing, EUR/USD was attempting to break the 1.1234-1.1234 resistance level (Fibonacci 61.8% on June’s debasement and high from August 2). Since Brexit, the single currency has been trading mostly sideways as investors assess the short and long-term consequences of an exit of the UK from the European Union. The process is not done yet, meaning that EUR/USD’s rise is mostly due to dollar weakness rather than a strong euro.
Yann Quelenn, market analyst: “ZEW Eurozone Survey should bounce back: The ZEW indicator consists of a survey of around 350 economists. Last month, the July release uncovered the underlying difficulties of the Euro area. Indeed, the indicator collapsed to a 4-year low to -14.7. It is clear that the Brexit vote added significant downside according to those economists. Since then the BoE has eased and the ECB is also willing to expand (one more time) its monetary policy because of Brexit.
From our vantage point, those difficulties were already existent and the Brexit has not revealed anything more. The BoE was already struggling to save its GDP and ECB president Mario Draghi announced multiple times that the European Institution will do whatever it takes to get back towards the path of growth. In other words, the global slowdown has not been worsened by the Brexit vote. We also believe that the global slowdown is due to central bank policy easing and massive increases in balance sheets.
We remain dubious that the ECB will manage to further weaken the single currency through its policy easing. Nonetheless, the Fed won’t raise rates this year in our view and this will help the EUR to depreciate slightly. We target EURUSD below 1.10 in the short-term.” ---
In the equity market, Asian regional markets were trading lower across the board as traders took profit after the recent rally. The Japanese Nikkei was down 1.62% and the Topix index fell 1.38%. In mainland China, the CSI 300 was down 0.36%. Offshore, Hong Kong’s Hang Seng edged up 0.08%, while in Taiwan the Taiex fell 0.42%. Finally, in Europe equity futures are following the Asian lead, trading broadly in negative territory.
Today traders will be watching inflation report, retail price index, RPI and PPI from UK; ZEW survey from Germany; manufacturing sales from Canada; housing starts, building permits, CPI, industrial production and capacity utilization from the US.