The US dollar could benefit from a sustained
rally if the Brexit talks fail
 |
| The US dollar could benefit from a sustained rally if the Brexit talks fail |
The dollar has rallied this week but could have the legs to rebound even more if an increasingly gloomy mood among Brexit negotiators causes UK-EU trade talks to collapse this fall for the pound sterling and the euro makes up a significant part of the flows measured by the dollar index.
Dollars were largely bought on Tuesday as stock markets and commodity prices resumed their decline from last week after North American traders returned from Labor Day when President Donald Trump called, pointing to the prospect of a permanent "decoupling" of relations with China down.
Investors had ignored the flood of negative news from China for months, but the dollar index fell nearly 10% between mid-May and early September as a possible choice emerged. sharp presidential elections. US exchange rates have benefited from profit-taking in recent days.
“Over the weekend, Trump threatens domestic companies that want to do business with China and makes them sell high betas. The US could target cotton grown in China, exposing the market to general risk. It's time to break up, ”said Bipan Rai, the North American head of foreign exchange strategy at Capital Markets CIBC.
Nowhere has profit-taking or short hedging been more evident than sterling, or more significant than the euro-dollar exchange rate, each of which has declined significantly as the dollar index rose 1.89% over the last period. the week.
The two European currencies make up almost two-thirds of the dollar index and were undermined not only by weak stock markets but also by renewed fears of a possible no-deal Brexit and complaints from the European Central Bank (ECB) last week about high euro exchange rates.
The ECB will announce its latest policy move on Thursday, and some market participants expect an attempt to convince the euro not to hit new highs or even to give up previous gains. The rate of the euro against the dollar is 57% of the ICE dollar index, so a decline there would support the battered and battered barometer of the US currency.
“The positioning of investors, the falling appetite for risk, and the next interest rate decision by the ECB on Thursday will continue to weigh on the pair in the short term. However, we do not expect any further pressure. to long positions in the US The USD will go "ugly" unless a breakout of 1.1650 is turned down, "said Stephen Gallo, European director of currency strategy at BMO Capital Markets." Overall, we prefer buying from lows in EURUSD and we expect investor demand to be ahead of 1.1700 (and above 1.2000 of course).
Meanwhile, the UK government is trying to impose a mid-October deadline on EU negotiators to reach a trade deal while insisting that Brussels demand UK water rights and a level playing field that allows the EU to maintain leverage and control over many national policy Questions about Brexit would give.
Indeed, Prime Minister Boris Johnson allegedly gave a unilateral interpretation of the EU Withdrawal Agreement under the guise of "clarifying" its terms, apparently placing EU leaders between sword and sword. the wall that gives them a choice of whether they are unlikely to step down from their current position or to force a no-deal Brexit.
"The US dollar is correcting higher in the very short term, undermining the month-long downtrend, and this has opened a recovery range for the 55-day mark at 94.47," said Karen Jones, head of US dollar currency technical research. , Commodities and bonds. at the Commerzbank. “GBP / USD is undermining 3-month uptrend at 1.3154 and the market remains under pressure. This protects the 6-month uptrend at 1.2847. Where were we wrong? The downtrend at 1.3522 is considered the major breakpoint towards 1.4377. 2018 long-term high.
Dollars were largely bought on Tuesday as stock markets and commodity prices resumed their decline from last week after North American traders returned from Labor Day when President Donald Trump called, pointing to the prospect of a permanent "decoupling" of relations with China down.
Investors had ignored the flood of negative news from China for months, but the dollar index fell nearly 10% between mid-May and early September as a possible choice emerged. sharp presidential elections. US exchange rates have benefited from profit-taking in recent days.
“Over the weekend, Trump threatens domestic companies that want to do business with China and makes them sell high betas. The US could target cotton grown in China, exposing the market to general risk. It's time to break up, ”said Bipan Rai, the North American head of foreign exchange strategy at Capital Markets CIBC.
Nowhere has profit-taking or short hedging been more evident than sterling, or more significant than the euro-dollar exchange rate, each of which has declined significantly as the dollar index rose 1.89% over the last period. the week.
The two European currencies make up almost two-thirds of the dollar index and were undermined not only by weak stock markets but also by renewed fears of a possible no-deal Brexit and complaints from the European Central Bank (ECB) last week about high euro exchange rates.
The ECB will announce its latest policy move on Thursday, and some market participants expect an attempt to convince the euro not to hit new highs or even to give up previous gains. The rate of the euro against the dollar is 57% of the ICE dollar index, so a decline there would support the battered and battered barometer of the US currency.
“The positioning of investors, the falling appetite for risk, and the next interest rate decision by the ECB on Thursday will continue to weigh on the pair in the short term. However, we do not expect any further pressure. to long positions in the US The USD will go "ugly" unless a breakout of 1.1650 is turned down, "said Stephen Gallo, European director of currency strategy at BMO Capital Markets." Overall, we prefer buying from lows in EURUSD and we expect investor demand to be ahead of 1.1700 (and above 1.2000 of course).
Meanwhile, the UK government is trying to impose a mid-October deadline on EU negotiators to reach a trade deal while insisting that Brussels demand UK water rights and a level playing field that allows the EU to maintain leverage and control over many national policy Questions about Brexit would give.
Indeed, Prime Minister Boris Johnson allegedly gave a unilateral interpretation of the EU Withdrawal Agreement under the guise of "clarifying" its terms, apparently placing EU leaders between sword and sword. the wall that gives them a choice of whether they are unlikely to step down from their current position or to force a no-deal Brexit.
"The US dollar is correcting higher in the very short term, undermining the month-long downtrend, and this has opened a recovery range for the 55-day mark at 94.47," said Karen Jones, head of US dollar currency technical research. , Commodities and bonds. at the Commerzbank. “GBP / USD is undermining 3-month uptrend at 1.3154 and the market remains under pressure. This protects the 6-month uptrend at 1.2847. Where were we wrong? The downtrend at 1.3522 is considered the major breakpoint towards 1.4377. 2018 long-term high.