Global Themes

US Dollar continues to roll over rivals 
- Dollar trend is your friend? 
- Mixed day for Sterling 
- Euro at year low

USD

Dollar trend is your friend?
There seems little reason, or appetite, to sell the US Dollar at the moment.

Since the end of April the currency’s index has risen over 4.5%; the last time such an aggressive move occurred over the same short space of time was back in Q4 2016. Dollar shorts (market participants choosing to sell the US Dollar) have been reduced in recent weeks, with US geopolitical concerns eroding. An example of this would be US President Donald Trump pulling the US out of the Iran nuclear agreement, long rumoured but confirmed yesterday.

President Trump’s actions have caused a ripple through global markets, raising the risk of conflict in the middle east and upsetting his European counterparts. The decision has also been pushing the oil prices higher (source: Reuters). The dollar’s appreciation yesterday could be attributed to the continuing rise in oil prices, with the commodity priced in US Dollars and US yields rallying once again. US PPI data will be released this afternoon at 1:30pm, all releases are forecast to fall but perhaps not enough to warrant concerns over next month’s interest rate hike by the Federal Reserve (Fed).

EUR/USD trades this morning closer towards the $1.18 handle, a break to the downside could see the pair fall and test Q4 2017 lows of $1.1552. Against the Japanese Yen, the dollar makes another run towards the ¥110 mark. This pair is up over 3.8% since the beginning of April. USD/CAD is struggling to break above the C$1.30 handle, but should the USD find enough momentum to push it higher it could trade back to 2018 highs of C$1.3124, last seen mid-March.

GBP

Mixed day for Sterling
Sterling reclaimed the €1.14 handle overnight after a quiet day of data releases.

The British Pound’s ability to reclaim this level is more a result of the Euro’s continued fall against the US Dollar, rather than any particular desire for the pound. This is reflected in GBP/USD which just holds onto $1.35 this morning, having fallen into the $1.34 handle overnight. $1.3480 looks like a key resistance level, with cable rejecting this level twice in May. If dollar strength continues and the pair breaks lower this could open up trading ranges not seen since 2017.

The key day for Sterling will be tomorrow, with the Bank of England (BOE) decision at 12:00pm, followed by Governor Mark Carney’s speech at 12:30pm. The main focus of headlines this morning was the Government’s defeat in the House of Lords last night. The peers voted that MPs will have a vote in parliament on remaining in the European Economic Area (EEA). A vote to do so would effectively keep the UK within the rules of the single market and is going to prove very divisive when it comes to be debated and voted on.

The cabinet has already been shown to be divided on the best course forward for Brexit. Foreign Secretary Boris Johnson heavily criticised some of the proposals being put forward by the Government on the customs union issue. In an interview in the Daily Mail, originally published on Monday, Mr Johnson’s comments could be seen as a direct attack on Prime Minister Theresa May.

EUR

Euro at year low
The Euro fell to fresh year lows against the US Dollar. EUR/USD closed the yesterday’s trading at $1.1861, after the US pulled out of the Iran deal as covered above.

The Euro slipped further this morning, hitting a new low of $1.1827 - its lowest since December 2017. The Euro also fell against Sterling, as the single currency was sold off.

Yesterday GBP/EUR saw a trading range of 0.7% over the course of the day and closed 0.4% higher at €1.1418. Limited Eurozone data releases this week could leave the Euro at the mercy of other currencies, with the Bank of England interest rate decision tomorrow followed by US inflation data.

The drive behind a lot of the Euro weakness has been fading confidence in the European Central Bank (ECB) ending its quantitative easing program and then moving on to raising interest rates. However, a report on Reuters this morning suggests market participants are pricing in a 75% probability that the ECB will raise interest rate by 10 basis point by June 2019. If the ECB gives hints this is the case, then this could trigger a Euro rally.




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