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Saxo Bank: Is the Trump dollar dump getting excessive?

US journalists never seem to tire of the intrigues issuing from Washington, but dollar traders might, says John J Hardy, Head of FX Strategy at Saxo Bank…

The combination of consistently weaker US data – yesterday it was the big misses in the April housing starts and building permits numbers – and daily Trump scandals is proving rather toxic for the US dollar.

The latest revelation is the story broken by the New York Times overnight in which former FBI Head James Comey claims that Trump said “I hope you can let this go” in reference to the bureau’s investigation of former national security advisor Flynn’s connections with Russia.

The biggest mover overnight on the news was the Japanese yen, fulfilling its usual role as safe haven when risk-off moves arrive out of the blue. Emerging market currencies were generally weak, with even USDTRY correcting a bit higher after a recent selloff despite a friendly meeting between Trump and the visiting Turkish president Erdogan.

The news flow has been so singularly negative for the USD with the onslaught of Trump stories and after a near-perfect storm of weak US data points that it is difficult to see how the negative momentum intensifies further here in the short term, so we may already be near a tactical inflection or support point for the US dollar.

Note that we almost touched the 61.8% retracement in EURUSD discussed yesterday near 1.1130.

Chart: EURGBP

Sterling is not enjoying the current environment, in which the fear is that France’s Macron and Germany’s Merkel can get along swimmingly and isolate the UK during the Brexit process – but the EURGBP rally is also a product of the resurgence in euro optimism linked to the French election and clearing of immediate existential concerns.

In any case, the current 0.8600 area looks critical as the latest pivot area as a it contains the 200-day moving average and the 61.8% Fibonacci retracement of the prior selloff wave.

The G10 rundown

USD – everything is running against the greenback’s favour at the moment, but hard to imagine that we can maintain the pace of negativity, so some consolidation may be in order. Such a consolidation could come just in time to keep the AUDUSD bears and USDCAD bulls in business for now, as key levels have yet to break there.

EUR – just as the negativity surrounding the USD is looking stretched, so is the positive momentum for the euro, as we watch for a possibly consolidation in the coming session, particularly against the JPY if risk appetite continues to take a hit.

JPY – the yen seizing the upper hand against the other major currencies as yields dip and risk appetite retreats on the latest Trump story. Using USDJPY as the JPY barometer, watching the Ichimoku daily cloud levels on today’s close and the 38.2% Fibo retracement near 112.00 as the next levels of interest. Still looking for an excuse to get long of USDJPY for a test back higher.

GBP – sterling suffering at the hands of the single currency despite yesterday’s strong UK inflation data – let’s see if the mood changes a bit for sterling on today’s data releases or if EURGBP can blast through the critical 0.8600 area we discuss in the chart above.

CHF – the franc joining the yen in correcting higher overnight on classic safe-haven behavior. We’ll need both a positive stance on the euro, signs of Swiss National Bank sight deposits dropping, and perhaps higher yields to build a new weak franc story. In the meantime, the SNB is going to be busy intervening. Note that USDCHF is nearing the last shreds of range support into the 0.9800 area.

AUD – AUD has escaped the negative attention it deserves, outside of EURAUD, perhaps, but a weak employment report out tonight could finally reverse this AUDUSD resurgence and see a push on the lows of the recent cycle.

CAD – USDCAD slipped through the 1.3600 area on the recent oil price surge, but we keep the focus cautiously higher as long as 1.3500-ish stays intact and a solid close back above 1.3650 would boost sentiment.

NZD – the kiwi flying under the radar as we await fresh volatility – generally prefer downside versus the USD if we can push back toward 0.6800 and get the USD out of the dogpound with stabilizing to rising rates again.

SEK – market giving the krona a wide berth and the weakness is sharper than any identifiable reason, save perhaps for position unwinding. 9.83 looks like the last arguable resistance level ahead of the 10.00 level.

NOK – a bit resilient on the recent oil surge and the better-than-expected mainland GDP figure yesterday. 9.35-9.25 is the downside pivot area for EURNOK.

 

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