USD hardly profits from rising trade tensions

KBC Market Research Desk KBC Bank

The euro outperformed on Friday, but the market reaction to the data was a bit remarkable. EUR/USD didn't profit from a jump in EMU inflation (1.7% headline, 1.2% core), which was considered temporary. Later, US payrolls showed strong job growth, but the dollar also failed to profit as wage growth disappointed again. The US currency even lost further ground as the US non-manufacturing ISM unexpectedly dropped. (FX) markets keep the view that the dollar is at risk to lose interest rate support if US inflation stays as tame as it was of late. EUR/USD closed at 1.1198. USD/JPY finished at 111.10.

This morning, the positive (goldilocks-like) sentiment in the US on Friday is abruptly overthrown as president Trump said he might raise tariffs on Chinese good as soon as Friday. The tweets are causing doubts on a positive outcome of the US-China trade talks. Asian equities and the yuan (USD/CNY 6.78) are suffering heavy losses. AUD/USD dropped below 0.70. The yen strengthened to the USD/JPY 110.30 area, but gains eased later. The euro is holding up well. EUR/USD is still changing hands in the high 1.11 area.

Today, there few important data in the US and EMU. The focus will turn to the US-China trade war. The yen will probably outperform. The impact on EUR/USD is not that evident. The EMU economy proved very sensitive to global trade tensions. So, an escalation in the trade war might be a euro negative. At the same time, a risk off correction might lead to lower US yields (less interest rate support for the dollar). If trade tension escalate further, US president Trump might also threat to use US the dollar as weapon. As always, we keep a close eye at the EUR/JPY price action in a risk-off context. However, we have the impression that the negative impact on EUR/USD might be limited for now. The price action on Friday also suggested that the bar for sustained USD gains might be quite high. We maintain the view that the EUR/USD 1.1110 support area won't be that easy to break.

On Friday, sterling gained further ground on headlines/rumours that the negotiations between UK government and labour might lead to an agreement on a rather soft Brexit (customs union). EUR/GBP dropped to the 0.85 area. However, comments during the weekend suggested there is still quite some distrust between the two parties. UK markets are closed today. For now, we don't expect sterling to get additional support from investors anticipating a political agreement on Brexit.

Download The Full Sunrise Market Commentary Currencies

Author

KBC Market Research Desk

KBC Bank

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.