Forex: Overview - Week of June 10-14

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06/12/2019 | 03:08 pm
The Dollar no longer benefits from its status as a safe haven on the foreign exchange market, while the potential consequences of the trade war on the world's largest economy could push the Federal Reserve to relax its monetary policy.


The latest monthly employment report notably mentioned disappointing hiring in May in the United States (75k compared to 180k anticipated). And while some attribute the reluctance of American companies on the labor market to the uncertainties generated by trade tensions, expectations of central bank action are rising even further.

Comments opening the door to monetary easing have multiplied among Federal Reserve leaders over the past ten days. According to data from the CME, the probability of a rate cut in July flirts with the 90% mark, while the Wall Street Journal understands that the American institution is preparing for such a decision.

This situation does not prevent Donald Trump from repeating his criticism of the FED, which he accuses of maintaining rates too high. He believes that this allows other currencies to be devalued, which represents a competitive advantage and penalizes the United States.

In Europe, the situation remains explosive between the EU and Italy, engaged in a budgetary arm wrestling match. Matteo Salvini, the vice-president, threatens the stability of the Old Continent by promising to be the most stubborn. On the macro side, inflation slowed sharply in May, with consumer prices rising by +1.2% year-on-year, compared to +1.7% in April.

According to press reports, Banque de France Governor François Villeroy de Galhau believes that Europe is facing strong economic uncertainties, also qualifying the current trade dispute between Washington and the rest of the world as the “greatest threat to growth”.

The ECB no longer plans to raise interest rates until the end of the first half of 2021, a further six-month delay, which did not meet higher expectations. The terms of the giant loans that will be granted to banks between next September and March 2021 have not attracted observers either.

In Australia, the central bank finally approved an expected rate cut by setting its main key policy rate at a new historic low (1.25%). This is the first reduction in the RBA's rent on money since August 2016 as the trade war threatens the growth of the country whose economy is heavily dependent on its exports, particularly to China.

Finally, in Mexico, investors welcome the immigration agreement between Washington and Mexico City, which lifts the White House's threat of customs sanctions.

This week, traders will be watching a speech by ECB President Mario Draghi and the rise in US consumer prices on Wednesday. A monetary policy announcement followed by a press conference by the Swiss National Bank will be held on Thursday morning. Finally, the publication of US retail sales, the country’s consumer barometer, will precede a speech on Friday by Mark Carney, Governor of the Bank of England.

Graphically, the rebound of the Euro offers a good timing to become a seller. Under 1.1428, we remain bearish and aim for a return to USD 1.1238 then USD 1.1130.

While the Australian Dollar is also benefiting from the greenback's decline, it remains vulnerable to Sino-American tensions and the RBA's reaction. Now at the contact of 0.7008, the Aussie could face the resistance of its 50-day moving average before going back down to USD 0.6871.
 
 
Source: Surperformance – July 12 2018, June 11 2019

First mistreated by Donald Trump's ultimatums, the Mexican Peso is provisionally recovering following the immigration agreement. The quotation hole left at the opening on Sunday could nevertheless cause a new rebound in the USD/MXN pair in a gap-filling logic. We are thus targeting a return of the Dollar to around MXN 19.5647.

Finally, the Yen remains particularly popular on the foreign exchange market in this climate of risk aversion. If the greenback were to close below JPY 108.00 per day, it would pave the way for an acceleration to JPY 107.00 in levels not seen since the flash crash on January 3.
Mathieu Burbau
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