FX Daily: “Risk on, risk off” sentiment again (Philip Wee)


Resistance around 1.1840 for EUR, 1.3750 for GBP.
Philip Wee22 Jul 2021
    Photo credit: Unsplash Photo


    Currencies will be driven by “risk on, risk off” sentiment. Dow, S&P 500 and Nasdaq Composite rose a second day by 0.8% to 0.9% after Monday’s sell-off. VIX volatility index eased to 17.9 from 19.7 but could still return above 20 again. The US 10-year treasury yield recovered a second day to 1.29% and needs to avoid closing the week below 1.20%. Sentiment is still weak for AUD and NZD despite failed attempts in the past two days to break below 0.73 and 0.69 respectively. USD/CAD fell on profit-taking to below 1.26 after it failed to break above 1.28 last Friday. Consensus expects US initial jobless claims to fall to 350k in the week ended 16 July. DXY index returned below 93.0 but is still supported around 92.8. 

    EUR is depreciating in a trend channel in July towards 1.17, the year’s lowest level. Going into the European Central Bank governing council meeting today, speculators are looking for a short-term bounce from the 1.1750 floor towards the 1.1860 ceiling, but are also mindful of a resistance at 1.1840, its 20-day moving average. EUR bulls will be disappointed if the ECB sounds patient in rolling back its crisis measures, implied from its adoption of a symmetric 2% inflation target and its emphasis on maintaining favourable financial conditions. ECB President Christine Lagarde is “guardedly optimistic” about the recovery because the delta-variant of Covid-19 poses a challenge to reopen economies. Although the pandemic emergency purchase programme is scheduled to end in March 2022, the ECB will stress the need for policy to be flexible and keep the door open for fresh measures to support the recovery if needed.

    GBP’s upside is capped around 1.3750-1.3800 after it bounced off the 1.36 support. Bank of England Deputy Governor Ben Broadbent will be delivering a speech entitled “Mismatch” today. He is expected to be cautious about the recovery where growth may have peaked amidst rising inflation and increasing infections. Despite its rebound yesterday, the FTSE 100 index has yet to return into the 7000-7200 range of the past 1-2 months. UK GDP slowed a second month to 0.8% MoM in May from its peak of 2.4% in March. Headline and core CPI inflation were above the 2% inflation target to 2.5% YoY and 2.3% in June. The BOE is split between tapering asset purchases and premature tightening at its next meeting on 5 August.







    Philip Wee

    FX Strategist - G3 & Asia
    p[email protected]



    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.

     
    The information herein is published by DBS Bank Ltd. It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong SAR Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.