FX Daily: Profit-taking risks amidst dovish sentiment (Philip Wee)


EUR could close below 1.18 for the first week since 2 April.
Philip Wee23 Jul 2021
    Photo credit: Unsplash Photo


    USD might find support if investors take profit on the last day of the week. US stocks recovered the third day but gains on Thursday were the smallest. Although the Nasdaq Composite Index led gains, Intel forewarned that sales would be lower in 3Q on global chip shortages and increased competition after record earnings in 2Q. Earlier in Asia, Hyundai Motors also projected slower sales in 3Q after its best quarterly earnings in seven years. The US 10-year treasury yield edged down to 1.278% from 1.288% after US initial jobless claims increased to 419k (vs 350k consensus) in the 16 July week from 368k (revised up from 360k) the previous week. Expect the Fed to sound more cautious than optimistic at the FOMC meeting on 28 July due to increased infections from the Delta variant. US President Joe Biden’s USD1 trillion infrastructure package faces another test on Monday after it failed to win support from Republican senators on Wednesday. 



    EUR could close below 1.18 for the first week since 2 April. Technically, the EUR’s outlook has weakened on a head-and-shoulders formation. The 50-week moving average is about to cut above its 20-week counterpart. EUR is capped around 1.1830, near its 20-day moving average. The European Central Bank struck a dovish tone with its new forward guidance at its governing council meeting.  Although the ECB expects economic activity to return to pre-crisis levels in 1Q22, it has increased vigilance over the downside risks posed by the Delta variant. The ECB does not consider the EU recovery strong enough for inflation to achieve its 2% inflation target over the medium term. Apart from a new goal to keep inflation symmetric around 2%, the ECB is committed to maintaining favourable financing conditions. Hence, the ECB stepped up purchases in 3Q under the pandemic emergency purchase programme (PEPP) which is likely to be extended as it approaches its expiry in March 2022. As things stand, the ECB will lag the Fed in delivering the first post-pandemic rate hike.






    Philip Wee

    FX Strategist - G3 & Asia
    [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.