The US dollar remains under pressure at the beginning of the day, correcting lower on Thursday. The GBP/USD pair holds firmer above the 1.2450 level amid renewed Brexit optimism around the Irish border backstop and broad USD weakness. The Sino-American trade war and the possible cut in interest rates continue to be in the spotlight for investors, who are assessing the current economic environment.
The decline in yields follows US-China trade concerns after President Trump said on Tuesday that both countries are still facing a “long way to go” in negotiations, while below-expectations housing data releases also weighed on the performance of yields.
Later today, the Philly Fed index is due seconded by the usual weekly report on the labor market. In addition, Atlanta Fed Raphael Bostic (2021 voter, centrist) speaks to Clarksville Chamber (Tennessee) and NY Fed John C. Williams (permanent voter, centrist) will speak on Monetary Policy.
The US Dollar Index, which measures the strength of the greenback against six major currencies, keeps correcting lower from weekly tops near 97.50 points. After climbing and failing to the mid-97.00s earlier in the week, the index came under renewed and quite strong selling pressure and is now challenging the key support at 97.00 the figure. The leg lower in the buck came in tandem with the moderate drop in yields of the US 10-year reference to sub-2.05% levels after climbing as high as the vicinity of 2.15% in past sessions.
At the moment, the US Dollar Index is losing 0.08% at 97.11 points and a break below 96.80 points (200-day SMA) would aim for 96.46 points (low June 7) and then 96.04 points (50% Fibo of the 2017-2018 drop). On the flip side, the initial hurdle aligns at 97.59 points (high July 9) followed by 97.80 points (monthly high June 3) and finally 98.37 points (2019 high May 23).
After climbing to fresh tops in the vicinity of 1.1250, the EUR/USD pair has now given away those gains and refocus its trade to the 1.1200 area.
The European currency has quickly lost upside momentum after news cited the probability that the ECB could revamp its inflation target. Also hurting the sentiment in EUR, the leader of Five Star Movement Luigi Di Maio hinted at the likeliness that the Lega wants to topple the government.
Spot rapidly left the area of session tops in the mid-1.1200s, coincident with the key 100-day SMA, and is now trading at shouting distance from weekly lows around the 1.1200 area.
Renewed selling interest has been hurting the buck in past hours on the back of poor results from the US housing sector and fresh US-China trade jitters, lending extra support to the riskier assets and at the same time helping spot to rebound from as low as the 1.1200 area.
At the moment, the pair EUR/USD is losing 0.11% at 1.1211 and faces the next support at 1.1193 (monthly low July 9) followed by 1.1181 (low June 18) and finally 1.1106 (2019 low May 23). On the flip side, a breakout of 1.1286 (high July 11) would target 1.1319 (200-day SMA) en route to 1.1412 (high June 25).
The USD/JPY pair fell to 107.61 amid renewed trade fears boosting demand for safe-haven assets. US government debt yields fell sharply, with the benchmark yield on the 10-year note currently at 2.05%, trimming last week’s gains. Equities are a sea of red worldwide, following big names missing earnings forecast, adding fuel to the fire.
Japan released overnight June trade data. The Merchandise Trade Balance Total printed a larger-than-expected surplus of 589.5 billion JPY.
The USD/JPY pair has bounced from the mentioned low, but remains in the red for the day, anyway bearish according to short-term technical readings. The 20 SMA extends its decline below the larger ones, all of them above the current level. The Momentum indicator has recovered modestly, while the RSI bounced from near oversold levels, but remains well into negative territory.
July’s low of the USD/JPY pair at 107.52 is now the immediate support with a break below the level opening doors for a test of 106.77, June’s low.
After bottoming at a fresh multi-year low of 1.2381, the GBP/USD pair began an upward corrective movement that sees it new struggling with the 1.2500 figure. Sterling weakness is a result of mounting speculation about a hard-Brexit, while the pair’s bounce has more to do with broad dollar’s weakness.
The Technical Confluences Indicator shows that GBP/USD pair is trading at a tough resistance area, with an even stronger one at around 1.2505, where it has its 10 DMA, and June’s monthly low. If bulls can clear the level, the pair can extend its gains up to the 1.2540 price zone, although the path toward this last is fulfilled with technical studies that will make the run tough.
The British pound may fall to parity against the US dollar, in the scenario for Hard Brexit, which would represent a historic bottom for the currency, shows an analysis of the American bank Morgan Stanley.
The US bank analysts believe that the intense pressure from British pound sales after Prime Minister Theresa May’s resignation shows that financial markets are worried that Britain may be targeting the worst Brexit scenario – those without an agreement.
According to them, if this scenario materializes, the British pound may fall to the range of 1.10-1.40. Meanwhile, though, if the new UK Prime Minister decides to pursue a firmer stance in the EU talks, it may weaken the pound to the range of between 1.20 and 1.10.
If the worst-case scenario of Morgan Stanley materializes, it will mean that the British pound can depreciate by about 19% of the current levels of trade against the US dollar. By way of comparison, “Black Wednesday” in 1992, when the UK announced it was leaving the European currency mechanism, the British pound collapsed by 25% against the US dollar.