NEWS / Foreign Exchange

USD makes comeback, but for how long?

The EUR/USD pair set a new record high at the opening Monday morning at the 1.4340 zone, as the G7 refrained from even mentioning the weak dollar as an issue. That had been expected more or less, so the move wasn??™t all that big and apparently it also ran out of steam very fast.

That was used as a signal for some profit taking. This however developed quite sharply due to the overextended conditions of this pair. EUR/USD fell back to the 1.4150 area in a bearish engulfing move. There was no news to guide this move so it seems very much technical inspired.

In the afternoon, things stabilized and the pair gradually even managed to tick back up to the 1.4190 zone this morning.

We feel the pair should still be in a buy-euro-on-dip scenario, despite the sharp correction yesterday. We are not yet convinced. Much to the contrary, we don??™t have a good feeling about the Greenback versus the single currency. The Fed will cut we believe (Fed??™s Evans seems to indicate a rate cut overnight) and the signals from the EMU show ongoing patience with the strong euro. EU??™s Juncker indicated being ???increasingly attentive??™, but not worried. Germany??™s FinMin Steinbruck even went as far as declaring he preferred a strong euro.

Today, the calendar does hold some interesting releases with the Richmond fed survey and late this evening the ABC consumer confidence.

The yen had to give back some of its recent gains yesterday. Of course things had gone very fast recently: USD/JPY had dipped from the 117+ area to the 113 zone in a week time.

The pair rebounded yesterday to the 114.50 area, but there was no news to accompany the move up. It may have been an equity story, as US equities, after having a poor start, managed to tick up in the end.

Looking at the longer term, USD/JPY is in a broad sideways range between 117.95 and 111.60. Yesterday??™s uptick doesn??™t alter this of course. We are not convinced by yesterday??™s dollar comeback, as it lacks fundamentals we feel.

We also want to see whether US stock markets can confirm yesterday??™s rebound today. Asian stock markets this morning also rebound, but have quite some way to go after Monday??™s hefty losses, so the jury is still out, if this is more than a small technical bounce.

EUR/GBP started the day a little bit higher at the 0.6990 zone, but then during the day dipped slightly to the 0.6970 zone.

The UK data have been solid recently (UK GDP and retail sales for instance), so we believe the sterling is underpinned from that angle to protect it from losses beyond EUR/GBP 0.70. That is why we feel more for a buy-sterling-on-dip approach at this stage.

Today is an interesting day. Data-wise the UK CBI quarterly industrial trends survey will draw attention, but also the speech of BoE swing member Kate Barker who will ventilate her views on the influence of the world economy on UK monetary policy.