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News over the weekend, including continued Houthi strikes in Riyadh has had negative impact on foreign currencies so far, especially those where the economy relies on energy imports. The EUR/USD is particularly vulnerable as lingering concerns over French fiscal policy continue to undermine the euro.
There’s not much in the way of data this week, meaning the EUR/USD forecast will be mainly driven by political and fiscal concerns, as well as the bond and oil markets.
The week has started with stocks, gold, silver and bitcoin all falling, as crude oil rebounded and bond yields pushed further higher. Trump refusing to agree to Tehran’s proposal to re-open the Strait of Hormuz has left the markets disappointed. Still, reports that mediators are expected to hold talks with the two sides on an amended version of the 7-day proposal that Iran presented, keeps hopes alive that we may see some progress.
The USD/JPY managed to extend its recovery to around 155.00 this morning which is a pivotal technical and psychologically-important level. The pair has been recovering from a seven-month low, as US Treasury yields and oil prices have been pushing higher and investors position for a potentially more hawkish Federal Reserve on Wednesday. Meanwhile the potential for a hawkish Bank of Japan surprise has limited the USD/JPY’s upside for now, relative to other dollar FX major pairs.
The higher oil goes, the worse it may get for the euro, which, to be fair, has performed well during the more recent rises in oil prices compared to earlier this year. Still, the risks to the near EUR/USD forecast remains tilted lower as the pair tests the 200-day average ahead of a pivotal week.
Ultimately, unless yields start to head lower, the pressure will likely remain on the US dollar, with currencies of countries with better fiscal discipline, like the Norwegian Krone and Swiss franc, likely to remain supported. This makes the USD/NOK our favourite currency to take advantage of the slump in the dollar.
There will be some key data from the UK to watch this week, which could set the tone for the pound, while the macro calendar in the US is a lot quieter. Once again, much of the market’s direction may therefore come down to crude oil. The greenback has been weighed down in recent weeks by a softer run of data which has reduced expectations of a Federal Reserve rate hike in September.
Friday’s US employment report was the first of four major pieces of economic data due before the Federal Reserve’s September meeting. The figures delivered a significant downside surprise, prompting markets to scale back expectations of a September rate hike to around 44%, from above 55% ahead of the release.
Friday’s US employment report was the first of four major pieces of economic data due before the Federal Reserve’s September meeting. The figures delivered a significant downside surprise, prompting markets to scale back expectations of a September rate hike to around 44%, from above 55% ahead of the release.
The FX markets remained largely in a risk off mode with the US dollar extending its gains while currencies of energy-importing economic regions like the euro remaining under pressure. This was despite the fact global stock markets managed to bounce back a little, as Brent oil prices consolidated near the recent highs.
