FX – Still Risk Off But Starting to Stabilize

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Market Drivers June 28, 2018
USDCNY continues to rise
US GDP on tap
Nikkei -0.01% Dax -.55%
Oil $72/bbl
Gold $1250/oz.
Bitcoin $6100

Europe and Asia:
EUR EZ Eco Sentiment 112.3 vs. 112

North America:
USD GDP (Q1 3rd Rev) 8:30

The dollar was well bid but its upward momentum stalled in morning European session with both euro and cable bouncing off the lows. The Asian trade was still dominated by trade war concerns as USDCNY continued to rise hitting its best levels since November of last year.

Still, its beginning to look like the worst of the trade tensions may be behind us – at least for now – as the Trump administration backed off any unilateral trade restriction measure against China.

Aside from China, the Eurozone was the other geopolitical focus of the market as the conflict over the migrant policy threatened to topple Angela Merkel’s coalition. Although no compromise on the deal has been reached, the immediate threat of early elections has receded, but this Friday’s EU summit could produce some market moving headlines as the migrant issue remains front and center of EU policy.

The euro continued to find bids underneath the 1.1550 level with 1.1500 remaining the absolute key near-term support. The eco data from the region was neutral with a slight uptick in economic sentiment reports and steady low inflation readings showing that ECB has no price pressures to worry about.

Although the fundamental picture in both Europe and UK remains neutral at best, the two currencies are so grossly oversold that small bounce may be due on even a modicum of positive risk on flows. As to USDJPY the pair continues to hold the 110.00 level in the wake of Trump backpedal on trade policy and will look to 10Y yields for any upward momentum. The yields on the 10Y have refused to rally with the benchmark still scraping bottom at 2.83% today. There is little market-moving eco data on the docket with only the 3rd revision of Q1 US GDP on the docket, but if the number is revised upward it could spur a rally in rates and if the 10 year can climb above 2.85% USDJPY should move past 110.50 towards the recent swing high of 111.00

Boris Schlossberg
Managing Director

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