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EUR / USD
GBP / USD
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AUD / JPY
AUD / NZD
EUR / CHF
EUR / GBP
EUR / JPY
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By Burton Frierson  —  Jul 22 - 03:20 PM

The dollar index edged higher in a relatively mixed day for the U.S. currency as the foreign exchange market digested rate cuts in China and a plot twist in U.S. politics.

Whether President Joe Biden's decision not to run for reelection has a more serious effect on trades predicated on a potential victory by Donald Trump in the November election remains to be seen, but for now EUR/USD and GBP/USD were relatively stable while USD/JPY fell.

China's rate cuts weighed on AUD/USD, with NZD/USD also retreating.

As for fundamentals, traders' focus will be on U.S. advance Q2 GDP data on Thursday and Friday's U.S. PCE data, which is closely watched by the Fed.

U.S.
Treasury yields rose 1-3bp across maturities.

The 2s-10s curve steepened 1bp to still inverted -26.18bp.

The S&P 500 was 1.09% higher, regaining some ground after the previous week's declines as investors reexamined the state of the presidential race after U.S. President Joe Biden said he would not pursue a second term.

WTI eased 0.31%.

Copper was down 0.83% but off its worst levels of the day after touching its lowest in more than 3-1/2 months.

Gold cut its losses to just 0.17% after hitting its lowest in more than one week.

Heading toward the close: EUR/USD +0.07%, USD/JPY -0.25%, GBP/USD +0.10%, AUD/USD -0.67%, NZD/USD -0.53%, AUD/JPY -0.88%.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Paul Spirgel  —  Jul 22 - 01:45 PM
  • GBP$ firm in NorAm afternoon trade, +0.1% at 1.2922; Mon range 1.2942-05

  • Pair supported ahead of Fri's 1.2901 low after putting in 2024 high Jul 17

  • Sterling support holds by 1.29 as traders await UK PMI and US PCE

  • UK, US inflation, growth data in focus as it will inform c.bank policy path

  • GBP$ supt 1.2901 Fri low, 1.2848 July 11 low, 1.2829 50% of 1.2613-1.3044

  • A close below 1.2829 may prod further reduction in extreme spec long

  • Res 1.2942 early NorAm session high, 1.2960 100-HMA, 1.3019 upper 30-d Bolli

Source:
Refinitiv IFR Research/Market Commentary
By eFXdata  —  Jul 22 - 01:30 PM

Synopsis:

Credit Agricole maintains a bullish outlook for the USD in the second half of 2024, driven by several key factors. They believe that the US rates markets have prematurely priced in a dovish Fed pivot, expect USD-positive outcomes from a potential Trump victory in the presidential election, and anticipate that a weak-USD doctrine could force the Fed to remain hawkish. Additionally, they see the USD as a hedge against volatility spikes due to political and geopolitical risks.

Key Points:

  1. US Rates Market Expectations:

    • Overly Dovish Pricing: Credit Agricole argues that the US rates markets have gone ahead of themselves by pricing in an aggressive dovish pivot by the Fed. They believe the Fed will not pivot as quickly as the market expects.
  2. Political Influence:

    • Trump Victory Base Case: Their base case remains a Donald Trump victory in the November US presidential election. They expect FX investors to focus on the USD-positive aspects of Trump's policy mix, especially if a GOP sweep of Congress becomes more likely.
    • USD-Positive Policies: Potential policies under Trump, such as trade tariffs, immigration curbs, and fiscal stimulus, are expected to boost the USD.
  3. Fed's Hawkish Stance:

    • Weak-USD Doctrine: A potential weak-USD doctrine could enhance the inflationary impact of Trump's policies, forcing the Fed to maintain a hawkish stance for longer.
    • Hedge Against Volatility: FX investors might continue to buy the USD as a hedge against potential volatility spikes due to US political and global geopolitical risks into year-end.

Conclusion:

Credit Agricole remains bullish on the USD for H2 2024, citing market mispricing of the Fed's dovish pivot, expected USD-positive outcomes from a potential Trump victory, and the Fed's likely prolonged hawkish stance due to Trump's policies. They also see the USD as a safe haven against political and geopolitical risks, supporting their constructive outlook for the currency.

Source:
Crédit Agricole Research/Market Commentary
By Christopher Romano  —  Jul 22 - 01:30 PM
  • NY opened near 0.6665 after 0.6702 traded overnight, slide extended

  • Firm US yields US2YT=RR, US$ weighed; USD/CNH rally to 7.2970 weighed

  • Commodity HGv1, XAU= drops & AUD/JPY fall below 104.00 added weight

  • AUD/USD fell below the 55-DMA and daily cloud top, hit 0.66315

  • Commodity bounce, equity ESv1 gains helped AUD/USD near 0.6640 late

  • Techs are bearish; RSIs are falling, monthly inverted hammer in place

  • US June existing home sales, July Richmond Fed index are risks Tuesday

  • For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By eFXdata  —  Jul 22 - 10:45 AM

Synopsis:

President Biden’s decision to withdraw his bid for a second term has injected fresh uncertainty into US politics ahead of November’s election. Vice President Kamala Harris has emerged as the clear front-runner to replace Biden as the Democratic nominee, but she faces a tight race against former President Trump. This development may influence market expectations and USD performance in the coming months.

Key Points:

  • President Biden's Withdrawal:

    • Announcement: President Biden announced he will not seek a second term and endorsed Vice President Kamala Harris as his replacement for the Democratic nomination.
    • Political Uncertainty: This decision adds uncertainty to US politics as it remains to be seen if Democrats will unite around Harris.
  • Democratic Nominee Prospects:

    • Support for Harris: Key Democratic figures, including Bill Clinton, Hillary Clinton, and Elizabeth Warren, have endorsed Harris. Other potential candidates have also thrown their support behind her, reducing the likelihood of a challenge.
    • Polling Data: Harris faces a 2-point deficit against Trump in national polls, similar to Biden's deficit. Harris' favorability is currently lower than Biden’s, but she has narrowed the gap against Trump since the start of the year.
  • Market Implications:

    • USD Outlook: The prospect of a tighter race between Harris and Trump could be less favorable for the USD. Market expectations regarding the election outcome and potential policy changes will likely influence USD performance.

Conclusion:

President Biden’s decision to withdraw from the re-election race and endorse Kamala Harris has added political uncertainty. While Harris is the front-runner for the Democratic nomination, she faces a challenging race against former President Trump. A tighter race could impact USD performance, with market expectations playing a crucial role in the coming months.

Source:
MUFG Research/Market Commentary
By Christopher Romano  —  Jul 22 - 11:05 AM

AUD/USD fell below the 55-DMA and daily cloud top before striking a 1-month low Monday on the back of broad based U.S. dollar buying, and bearish factors are building up with the potential to put the entire April-July rally into jeopardy.

Surprise rate cuts for China's 1-year and 5-year LPRs from the PBOC weakened the yuan CNH=D3, which the Australian dollar often acts as a proxy for.

The rate cut may also lead investors to expect a less restrictive RBA going forward as the economic recovery in China, Australia's largest trading partner, continues to struggle.

Commodity prices suggest AUD/USD's downside may extend.
Iron-ore DCIOc2 and copper HGv1 futures prices hit 4-month lows Monday, which may be a sign China's economic struggles are deepening.

Recent price action in AUD/USD has technicals now highlighting downside risks.

Daily RSI is falling and monthly RSI has turned lower after it diverged on the 6-month high set on July 11.
The RSIs imply downward momentum is in place.

A monthly inverted hammer candle has formed for July and it would be a major bearish signal if it remains at the end of the month.

U.S.
Q2 GDP, weekly claims and June PCE are looming U.S. data risks.

Results that rally U.S. rates SRAZ25 and dollar could drive AUD/USD much lower.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By eFXdata  —  Jul 22 - 09:30 AM

Synopsis:

BofA anticipates another rate cut from the Bank of Canada (BoC) at its July meeting. Despite split opinions among economists, BofA believes subdued CPI and falling inflation expectations justify a rate cut. They forecast USD/CAD to remain supported above 1.36 in the near term but expect the pair to end the year slightly lower as US economic data softens and triggers Fed cuts.

Key Points:

  • Market Expectations:

    • Rate Cut Probability: For most of June and early July, the rates market priced a 50-60% chance of a BoC rate cut at the July meeting.
    • Post-CPI Data: After the June Canada CPI data confirmed subdued domestic inflation, the market pricing for a July rate cut jumped to 90%.
  • Economists' Forecasts:

    • Split Opinions: Economists are divided on whether the BoC will cut or keep rates on hold for the July meeting.
    • BofA's View: BofA is in the rate-cut camp, citing subdued CPI and falling Q2 inflation expectations as sufficient conditions for continued rate cuts.
  • USD/CAD Outlook:

    • Near-Term Support: USD/CAD is expected to stay supported above 1.36 in the near term due to the headwinds of another imminent BoC rate cut.
    • Year-End Forecast: BofA forecasts USD/CAD at 1.36 for Q3 and 1.35 by year-end, assuming US economic data softens and triggers Fed cuts in the second half of the year.

Conclusion:

BofA expects the BoC to cut rates at the upcoming July meeting, driven by subdued inflation and falling expectations. While USD/CAD is likely to remain supported above 1.36 in the near term, they forecast a moderate decline towards 1.35 by year-end as US economic data softens and leads to Fed rate cuts.

Source:
BofA Global Research
By eFXdata  —  Jul 22 - 08:30 AM

Synopsis:

Goldman Sachs sees the upcoming Bank of Canada (BoC) meeting as a close call. Despite firm inflation data in May and June, a July rate cut remains the base case for their economists. However, the actual odds of a cut may be lower than market pricing suggests. The decision between easing in July or September is finely balanced, and the outcome could significantly impact USD/CAD.

Key Points:

  • Inflation Data:

    • Recent Firmness: May and June CPI reports have shown firm inflation, with inflation closer to 3% on a 3-month annualized basis.
    • In Line with Projections: Despite the firm data, inflation has been broadly in line with the latest Monetary Policy Report (MPR) projections.
  • BoC Meeting Outlook:

    • Base Case: Goldman Sachs economists’ base case is for a July rate cut, though they acknowledge the challenging backdrop due to recent inflation data.
    • Market Pricing: The market is pricing in close to 20bps for a July cut, but Goldman Sachs argues that the actual odds are lower.
    • Balancing Act: The decision between easing in July or September is delicate, with a possibility that the BoC might prefer a cautious approach and cut at a slower pace.
  • Potential Outcomes:

    • July Cut: If the BoC cuts rates in July, it could indicate a more dovish reaction function and support further upside in USD/CAD, especially if Fed officials remain cautious about cuts.
    • Hold Decision: If the BoC decides to hold rates, it would likely disappoint markets in the short run. However, if the BoC retains its easing bias and signals encouragement from recent data, it would not significantly alter Goldman Sachs' cautious view on CAD.

Conclusion:

Goldman Sachs sees the upcoming BoC meeting as a close call, with recent inflation data complicating the decision for a July rate cut. While a cut remains their base case, the actual odds may be lower than market expectations. The outcome of the meeting will be crucial for USD/CAD, with a rate cut potentially supporting further upside in the pair, while a hold could disappoint markets but maintain a cautious outlook on CAD if the easing bias is retained.

Source:
Goldman Sachs Research/Market Commentary
By Christopher Romano  —  Jul 22 - 07:20 AM
  • AUD/USD rallied to 0.6702 in Asia, sellers emerged, 3-week low then traded

  • Drop aided by USD/CNH rally to 7.2960 after the PBOC cut 1-yr, 5-yr LPRs

  • AUD/JPY fall below 104.20, US yield US2YT=RR gains also weighed on AUD/USD

  • Copper HGv1 drop may have contributed to pair trading down to 0.66605

  • AUD/USD pierced the 55-DMA and technicals are now leaning bearish

  • Daily, monthly RSIs falling, monthly inverted hammer candle in place

  • Chicago Fed's June National Activity index is the sole data risk in NY

  • For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Richard Pace  —  Jul 22 - 05:50 AM
  • FX options are forward looking and thrive on volatility - an FX bellwether?

  • Option implied volatility gauges FX realised volatility expectations

  • It's trading near long term lows and lacks near term directional bias

  • Traders have been selling EUR/USD implied volatility after any increase

  • EUR/USD is close to the middle of a recent 1.0862-1.0948 range

  • Bigger resistance March highs 1.0963-80, Jan double top by 1.1000

  • Support resides 11 July low 1.0831 before key 200-dma 1.0815

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Justin Mcqueen  —  Jul 22 - 05:20 AM

Typo in title

  • Speculators net longs in the pound are at an all time high

  • Follows a record weekly increase in net longs = 48k

  • Despite this, cable has faltered at the 1.30 handle

  • Historically, a 10yr z-score of 1.7 = contrarian signal. Currently 4.0

  • As such, this raises the risk of an interim top for GBP

  • Other tech indicators have also signalled red flags for GBP nL1N3J70JL

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Martin Miller  —  Jul 22 - 04:30 AM
  • USD/JPY last week broke but failed to close under the daily cloud: bear trap

  • On Friday the daily Ichimoku cloud spans the 155.53-156.23 region

  • Bear trap, set when a market breaks below a level but subsequently reverses

  • There is a good chance for a bigger recovery to the kijun line, at 158.67

  • The daily kijun line is the midpoint of the last twenty-six days

  • USD/JPY Trader TGM2336. Previous update nL1N3JB0DZ

Source:
Refinitiv IFR Research/Market Commentary
By Martin Miller  —  Jul 22 - 02:40 AM
  • EUR/USD failed to sustain this week's break above 1.0934 Fibo, a "bull trap"

  • 1.0934 Fibo is a 61.8% retrace of the 1.1139-1.0602 (2023-2024) EBS drop

  • Usually a bull trap is a bearish sign, increasing the chance of a top

  • A bull trap is set when a market breaks above a level but then reverses

  • Good chance of a relapse back to the daily cloud that spans 1.0759-89

  • EUR/USD Trader TGM2334. Previous update nL1N3JA1CF

Source:
Refinitiv IFR Research/Market Commentary
By Peter Stoneham  —  Jul 22 - 02:30 AM
  • Gold had looked to $2500 after putting in a new $2484 record high Jul 17

  • Market factoring a U.S. rate cut this year cited: Sept in the frame

  • Three-day slide to $2393 put bull targets on hold: modest bid early Mon

  • Joe Biden's decision to withdraw from 2024 presidential race cited

  • Political uncertainty triggers hedging but only a modest move so far

  • On the pullback a 50% Fibo at $2389, off $2293-$2483 climb

  • Risk-on and risk-off factors may support demand for gold

    For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Richard Pace  —  Jul 22 - 02:00 AM

Repeat with no changes

  • FX option strike expiries for 10-am New York/3-pm London - Monday July 22

  • EUR/USD: 1.0845-50 (1.1BLN), 1.0900 (496M) 1.0925 (616M), 1.0950 (918M)

  • EUR/CHF: 0.9650 (272M), 0.9700-10 (1.1BLN)

  • GBP/USD: 1.2900 (200M), 1.2930-40 (1.2BLN)

  • EUR/GBP: 0.8375 (480M), 0.8415 (400M), 0.8450 (432M), 0.8465-75 (925M)

  • AUD/USD: 0.6650-55 (757M), 0.6700 (1BLN). NZD/USD: 0.6095 (330M)

  • USD/CAD: 1.3575 (1.7BLN), 1.3700-10 (807M), 1.3805 (391M)

  • USD/JPY: 156.00 (531M), 157.30 (415M), 158.00 (2.6BLN), 158.45-50 (789M)

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Krishna K  —  Jul 21 - 11:55 PM
  • GBP/USD up 0.1% in Asia but off early 1.2940 high hit on U.S. political news

  • News Biden had ended his failing reelection campaign caused an early blip

  • Analysts say Biden exit could spur Trump-trade unwind, divided govt eyed

  • USD regains ground as risk aversion hits Asia on China economy concerns

  • China cuts short and long-term rates by 10bps, taken as sign of weak economy

  • UK launches pensions system review aimed at boosting economic growth

  • U.S. inflation data key this week for Fed rate expectations

  • Asia range 1.2913-1.2940; support 1.2890-1.2900, resistance 1.2950, 1.3000

  • For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Krishna K  —  Jul 21 - 10:45 PM
  • AUD/USD down 0.25% as China sentiment deteriorates despite PBOC rate cuts

  • China cuts short and long-term rates by 10bps, taken as sign of weak economy

  • Sliding copper and iron prices on weak China demand weigh on AUD

  • Asia risk aversion adds to selling pressure; Shanghai -0.9%, ASX 200 -0.75%

  • U.S. political developments taken in stride; U.S. data key this week

  • Support at 0.6661-64, 61.8% of June-July rally & 55-DMA; break opens 0.6630

  • Resistance 0.6700-05, 0.6725-30; Asia range 0.6702-0.66625

  • For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Ewen Chew  —  Jul 21 - 09:25 PM
  • GBP/USD gets a lift as USD slips on Biden news nL1N3JD061

  • Last 1.2927 after blipping up to 1.2940 from close 1.2911

  • Mon closing above 1.2945 engages Bollinger uptrend channel

  • Exit from presidential race tames Trump victory bets

  • US presidential election outcome looks more uncertain now

  • Bets on likely Trump win stoking inflation get pared back

  • For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Krishna K  —  Jul 21 - 08:00 PM
  • AUD/USD up 0.25% in Asia as markets react to U.S. political developments

  • President Joe Biden dropped his faltering reelection bid on Sunday

  • Biden's exit could spur Trump-trade unwind, divided government eyed

  • S&P E-Mini +0.3%, Treasury futures rise 3 ticks but uncertainty rules

  • AUD upside limited as China concerns, commodities selloff weigh

  • Copper, iron ore trend lower on China demand concerns, will cap AUD

  • China LPR, U.S political developments key Mon; US inflation data this week

  • AUD Friday range 0.6709-0.6681, Monday Asia range 0.6688-0.6702

  • Support 0.6675-80, 0.6650-55 resistance 0.6720-25, 0.6745-50

  • For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By Burton Frierson  —  Jul 19 - 03:10 PM

The dollar rose on Friday, strengthening further away from recent lows as markets puzzled over a tech outage that hamstrung industries ranging from travel to finance while investors also prepared for key data releases next week that will included the Fed's favorite inflation indicator.

While the tech issues emanating from a software update by global cybersecurity firm CrowdStrike enhanced the dollar's safe-haven appeal, investors will be looking to next Friday's PCE release to affirm the recent increase in betting on Fed interest rate cuts this year.

Though some rate cut exuberance has been tempered from this week's extremes, the futures market is still fully discounting two quarter-point reductions this year and a strong chance of a third.

By March, the market foresees 100bp of easing by the U.S. central bank.

U.S.
Treasury yields rose 4-6bp across maturities with the 2s-10s curve little changed around -27bp.

Though still inverted, the curve has steepened from a depth of -50bp in late June as markets priced in a greater chance of Donald Trump winning the November presidential election, with all of the fiscal, tax and trade policy ramifications that might entail.

The S&P 500 was down 0.59% by New York afternoon trade, deepening the sell-off from recent record highs driven by tech stocks and mixed earnings, while investors assessed the impact the cyber outage that knocked down CrowdStrike's shares.

WTI tumbled 3.19% as oil prices reacted to renewed hopes of a ceasefire in Gaza as well as the firmer dollar.

Copper was down 1.04%, falling for a fifth straight session that took it to its lowest level in three months on disquiet about a weak Chinese economy and the lack of stimulus announcements.

Gold slid 1.89% as the dollar gained and profit taking kicked in following bullion's all-time peak hit earlier this week, which was fueled by rising expectations of a U.S. interest rate cut in September.

Heading toward the close: EUR/USD -0.16%, USD/JPY +0.07%, GBP/USD -0.27%, AUD/USD -0.34%.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary
By eFXdata  —  Jul 19 - 01:30 PM

Synopsis:

MUFG maintains its forecast for the ECB to cut rates in September and December but acknowledges the risk of fewer cuts, which could support the euro. MUFG expects EUR/USD to test the upper end of its current trading range over the summer, with potential to retest last year's high if it breaks above 1.1000.

Key Points:

  • ECB Rate Cut Forecast:

    • September and December Cuts: MUFG sticks to its forecast for the ECB to implement rate cuts in September and December.
    • Risk of Fewer Cuts: There is a possibility that the ECB could cut rates less than expected, which would be supportive for the euro.
  • EUR/USD Outlook:

    • Current Trading Range: EUR/USD has been trending higher and is expected to test the top of the 1.0500-1.1000 trading range over the summer.
    • Potential Breakout: A break above the 1.1000 level could lead to a retest of the high from the end of last year at 1.1139.

Conclusion:

MUFG continues to forecast ECB rate cuts in September and December but notes the potential for fewer cuts, which would benefit the euro. EUR/USD is expected to test the upper end of its current trading range, with a possible move towards 1.1139 if it breaks above 1.1000.

Source:
MUFG Research/Market Commentary
By eFXdata  —  Jul 19 - 10:45 AM

Synopsis:

ANZ remains bearish on GBP despite stronger headline, core, and services CPI. Softening labor market data and slowly easing CPI pressures indicate a dovish sentiment within the Monetary Policy Committee (MPC), suggesting the recent GBP rally over 1.30 is tentative.

Key Points:

  • CPI Analysis:

    • Headline and Core CPI: Stronger CPI readings at the headline, core, and services levels.
    • Services CPI: While services CPI was steady at 5.7% y/y, excluding volatile items like package holidays, accommodation, and airfares leaves it closer to 5.4%.
  • Labor Market Data:

    • June Job Growth: Much of June's job growth was focused on the healthcare sector (161k out of 241k jobs created).
    • Median Pay Growth: Median pay growth rose only 3.6% y/y, the slowest growth since August 2020.
    • Signs of Weakness: Softening labor market data underscores some dovish sentiment within the MPC.
  • Monetary Policy Committee Sentiment:

    • Dovish Sentiment: Despite hawkish rhetoric from some members, the BoE's June meeting statement showed little reaction to CPI surprises and acknowledged the contribution of volatile items to elevated services CPI.
    • Governor's Comments: BoE Governor Andrew Bailey noted that not all CPI categories need to be back at 2% y/y for the BoE to begin easing rates.
  • Market Positioning:

    • Extended Positioning: CFTC non-commercial positioning shows extreme net long positions, indicating potential downside risk for GBP.
    • Historical Patterns: Similar extended positioning led to GBP downside in July 2023 and March 2024.

Conclusion:

ANZ remains bearish on GBP, citing softening labor market data, slowly easing CPI pressures, and a dovish sentiment within the MPC. The recent GBP rally over 1.30 is seen as tentative, with extended market positioning at risk of reversal, especially if the BoE delivers a rate cut in August despite strong CPI figures.

Source:
ANZ Research/Market Commentary
By eFXdata  —  Jul 19 - 09:42 AM

Synopsis:

BofA argues that the convergence of G10 growth rates in 2024 will be bearish for the USD, as the US growth outperformance seen in 2023 is expected to diminish. This dynamic, combined with softening US data and anticipated Fed rate cuts, supports a bearish outlook for the USD.

Key Points:

  • Focus Shift to Global Growth Dynamics:

    • Historical Focus: The market has focused on global inflation dynamics over the past 2-3 years.
    • Emerging Focus: Global growth dynamics are expected to gain importance as global central banks embark on a rate-cutting cycle.
  • G10 Growth Forecasts:

    • US Growth Convergence: Q4/Q4 G10 growth forecasts indicate US growth will "catch down" to the rest of the G10 after significant outperformance in 2023.
    • Economic Surprise Indices: This trend is already observable in economic surprise indices and Q1 2024 GDP releases.
  • Implications for USD:

    • Growth Differential: A shrinking US-world growth differential is bearish for USD, with a +55% long-term correlation since 1974.
    • Monetary Policy: Softening US data leading to eventual Fed cuts and falling US real rates this year are also bearish for USD from a monetary policy perspective.
    • Quant Signals: Near-term quant signals are bullish for GBPUSD, and the value factor favors NOK to catch up.
  • Moderate USD Weakness Expected:

    • Growth Outlook: While BofA does not expect US growth to fall below the rest of the world, any USD weakness this year is expected to be moderate.
    • Risk Factors: Potential geopolitical and political shocks later this year could derail the global soft-landing narrative and boost USD demand.

Conclusion:

BofA anticipates that the convergence of G10 growth rates in 2024 will be bearish for the USD. The diminishing US growth outperformance, coupled with softening data and anticipated Fed rate cuts, supports a bearish outlook for the USD. However, the expected USD weakness is likely to remain moderate unless geopolitical or political shocks disrupt the global economic landscape.

Source:
BofA Global Research
By eFXdata  —  Jul 19 - 08:49 AM

Synopsis:

Credit Agricole sees GBP as one of the best-performing G10 currencies, despite recent setbacks due to returning risk aversion and stickier-than-expected UK inflation. The GBP's relative strength is attributed to expectations that the BoE will maintain rates, reinforcing its status as a top performer in the G10 FX space.

Key Points:

  • Recent Performance:

    • End of Winning Streak: Risk aversion and stickier UK inflation have ended GBP's recent winning streak.
    • BoE Rate Expectations: The market expects the BoE to keep the bank rate unchanged on 1 August, postponing any rate cut decision to later in the year.
  • Upcoming Data Focus:

    • UK PMIs for July: The focus will be on the UK PMIs, particularly evidence of economic recovery extending into Q3.
    • Economic Resilience: Persistent economic resilience might convince policymakers to delay easing beyond August, although it is not central to the current debate.
  • FX Market Reaction:

    • Relative Expensiveness: Following its recent rally, GBP looks expensive against both EUR and USD when compared to short-term fair value estimates based on its relative rate appeal.
    • Long Positioning: GBP remains one of the biggest long positions in the G10 FX market, warranting cautiousness on the near-term outlook for the currency.

Conclusion:

Despite recent challenges, GBP continues to be one of the best-performing G10 currencies, supported by expectations of stable BoE rates and economic resilience. However, its current expensive valuation and significant long positioning suggest cautiousness in the near-term outlook. Upcoming UK PMIs will be critical in assessing whether economic recovery can sustain this momentum.

Source:
Crédit Agricole Research/Market Commentary
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