News & Analysis
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With the dollar barely resisting further collapse and stimulus talks stalled, today’s release of July’s non-farm payrolls report at 13:30 BST may be a watershed moment for the currency.
Sterling is trading up against both the dollar and euro this morning after the Bank of England kept all policy settings unchanged in a unanimous decision. However, forecasts for 2021 were solidly downgraded, due to the MPC now assuming a greater degree of “scarring” to consumer behaviour and productivity.
The dollar has weakened in recent weeks and months, due to a potent confluence of factors including a uniquely bad COVID pandemic, a febrile political landscape, and anticipation of the FOMC delivering a lower US yield curve for well into the future.
The Norwegian krone was the worst performing G10 currency in the year to date, reaching 11.7 per USD in Q1 before rallying to current levels of around 9.02. While the oil crash and strong dollar demand in March were the main drivers for the krone’s initial crash, it...
After a brief period of stability the dollar once again found itself on the defensive against many major currencies overnight, with CAD, NZD and AUD racking up the biggest gains among the G10 currencies. Higher gold and commodity prices were also likely related to the pattern of gains overnight.
We’ve recently updated our EURCHF and USDCHF forecasts, an outlook will be scheduled for sometime next week. Discussion of EUR and USD dynamics will also be outlined in their respective outlooks due imminently. We predominantly forecast EURCHF and then triangulate out our USDCHF calls with the aid of our EURUSD forecasts.
The dollar stabilised in G10 FX markets yesterday after bouncing on Friday from two year lows, as measured by the dollar DXY index. The latest Covid case data did little to disrupt the dollar’s progress either as new infections slowed to 0.9% from 1.4% the week prior.
The euro rose the most in a decade in July thanks to the dollar’s largest retreat since 2010. The euro’s largest rally in July is arguably due to expectations of a stronger economic recovery in Europe now the virus situation has stabilised. The divergence in growth expectations has also led to a build-up in EUR longs by speculative investors.
Covid cases rising in parts of Europe, Tokyo and Victoria could prompt the dollar to find support from the risk environment deteriorating in a broader sense as opposed to risks being isolated to the US economy. While the progression of Covid is monitored closely, key data points such as Nonfarm payrolls, central bank meetings in Australia, Brazil, the UK and India and eurozone retail sales are in focus.
Focus is now turned to Italian and eurozone GDP, German retail sales from June, and the eurozone’s July Consumer Price Index, all to be released throughout the morning. The question is if they will be sufficient in denting the positivity around the euro at the moment.