USD sold against the EUR & GBP after the London open
CPI data strong, but Fed likely to keep asset purchases
JPY on the back foot against all majors
Thursday morning saw the US dollar sold off across the board. An increasingly prolonged standoff between Congress and the White House regarding a renewal of the coronavirus stimulus package is hammering confidence in the US recovery. With both sides firmly opposing each other’s views, a near term resolution seems increasingly unlikely.
Negotiations between the EU and the UK are ongoing and recent optimism expressed by both sides signalled an agreement is possible. As a result both the euro and the British pound are the key benefactors from the USD selloff.
In the meantime another leg higher in the euro could be met by resistance from the ECB, which is meeting next week. The single currency has rallied over 11 per cent since bottoming out in late March. That said, the next meeting of the central bank governing the Euro area is not due before September the 10th.
The EURUSD pair is leading the way higher after breaking through the 1.1800 and the 1.1820 levels. A test of 1.1850 is so far being contained, with a sustained break putting the 1.1900-1.1920 area back in focus. A failure to break above is likely to weigh on the pair and reverse this morning’s gains.
Source: TradingView & ThinkMarkets
The alternative scenario to the downside starts with a break back below the trend line around 1.1820 and opens the door to a return below the figure at 1.1800 and another test of 1.1780 with the 1.1700 figure as the next big target.
The GBPUSD pair broke through a trend line in the 1.3095-1.3100 area with bulls eyeing a move towards 1.3130 and another move towards the top line of the range in the 1.3170-80 area. Only a move back below bids between 1.3070-80 would open up the downside for another test of the resolve of GBP bulls in the 1.3000-10 zone.
Source: TradingView & ThinkMarkets
The USDJPY is still constructive with the USD less than 15 pips away from yesterday’s high. The Japanese yen is getting sold off across the board amid a sustained increase in risk appetite. A break above the 107.00 level opens up a test of 107.30 and 107.50. The downside is likely to be contained by bids between 106.40 and 106.50. only a strong break below would put in play the 106.20 level.
Source: TradingView & ThinkMarkets
Fundamental News
US inflation has been on the minds of traders since yesterday’s surprise print higher at +0.6% month-on-month. While higher US inflation has been traditionally bullish for the US dollar, the Federal Reserve’s clear stance that it intends to allow inflation to overshoot in the coming quarters is pouring cold water on any expectations for tighter monetary policy regardless of inflation levels.
The upcoming US presidential election is another major risk with the coronavirus complications likely to complicate the voting process. USD flows into the US election could be surprisingly strong given the chance of a change in leadership.
With corporate tax rates likely to increase assuming a win by the Democratic ticket featuring Joe Biden and Kamala Harris, repatriation flows into the election could rattle FX markets.
According to one of the best poll aggregators, FiveThirtyEight, Joe Biden is favoured to win the US presidency with a chance of 72 in 100. Trump’s chances are estimated at 28 in 100 with key battleground states Arizona, Pennsylvania, Arizona, Minnesota and Wisconsin once again being critical for a win.
Back