Merkel Sends Euro Higher

new European Union

The interruption of last week’s steady negative news stream from the US saw the dollar consolidate its recent losses.  German Chancellor Merkel’s comments ended this brief phase and sent the euro higher.  Since the euro broke above $1.1100-$1.1130,  we have been warning of potential toward the US election high of $1.13.  

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EM Preview for the Week Ahead

blog-icons-empreview emerging markets previewEM FX ended last week on a firm note, shrugging off political risk that consumed markets earlier in the week.  With US rates remaining low, the dollar remains under pressure against the majors, and so EM FX is likely to benefit also.  Yet we warn investors not to jump back into EM countries that are inherently riskier, such as Brazil, South Africa, and Turkey.  We continue to favor Asia in the current environment.
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Yen and Aussie Bears Push Forward, while Sterling Bears Continue to Run for Cover

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In the Commitment of Traders reporting week ending May 16, speculators in the futures market made three significant adjustments in the currency futures.  

 

First, they continued to accumulate a large short yen position.  The bears added 23k contracts to their gross short yen position to lift it to 102k contracts.  This is the highest in two months and the largest build in five months.  The net short yen position swelled to 60k contracts from 36.3k.

 

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Greenback Stays on Defense

Blog icons - FX Outlook dollarThe US dollar was hammered last week, and there is little from a technical or fundamental perspective to suggest near-term movement in the direction of our longer-term forecasts.  The escalation of the investigation into Russia’s involvement in the recent US election threatens to take resources, time, and attention away from the economic agenda, which had already begun meeting some skepticism.  At the same time that expectations are mounting for a shift in ECB’s stance in a few weeks, and Japan’s economy surprised on the upside in Q1.  

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What Has Changed in EM

  • IconChina’s government approved the creation of a bond link between Hong Kong and the mainland
  • S&P upgraded Indonesia one notch to investment grade BBB- with stable
  • Fitch revised the outlook on Vietnam’s BB- rating from stable to positive
  • Egypt will announce a package of social spending soon
  • Moody’s changed the outlook on Poland’s A2 rating from negative to stable
  • Brazil press reported that meat-packing company JBS has submitted compromising tape recordings to the Supreme Court
  • Chile central bank surprised markets with a 25 bp cut but signaled a move to a neutral bias Continue reading