USD: Reverting back to stronger global confidence - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital Pty Ltd, suggests that as we await a possible uplift in US inflation or other factors that may lift the USD, e.g. pressures on emerging markets, US tariffs on China, or Italian budget blues, the market appears to be reverting back to seeking growth in markets and currencies outside the USA.

Key Quotes

“This may reflect an over-sold condition in emerging markets, driven to a nadir two weeks ago by the blow-up in Turkish assets.  Since then the market appears to have revised down its fear that problems in Turkey could be a big drag on the Eurozone.”

“China reintroduced its counter-cyclical factor into its daily currency fix, interpreted by the market as a sign that it will prevent a further significant decline in the CNY.  While trade tensions appear to have limited the rebound in Asian markets, they have recovered as the CNY has stabilised.”

“The market may also be presuming that China will enhance efforts to underpin its domestic economic growth to compensate for the risks to its exports to the USA.”

“The US-Mexico trade deal has triggered a significant rebound in global auto shares.  Notwithstanding Trump’s threatening comments towards Canada and China, the market sees the Mexico trade deal as a sign that the US may not move forward with broad tariffs in the auto sector that might hurt Europe and Canada.”

“Recent Eurozone economic data suggests that the region has also regained its feet after a stumble early in the year. Forward rate hike expectations in the Eurozone (one-year-forward from one-year-forward) have recovered somewhat in the last week, whereas US forward rate expectation on the same basis have flattened.”

“Eurozone inflation and unemployment data later this week, starting with German and Spanish CPI data on Thursday and Eurozone data on Friday, may set the course for the EUR.”