G10 FX Week Ahead: No News Is Bearish News For The Dollar

We expect USD to stay on a gentle downtrend as the prospect of the Fed adding more liquidity if needed should keep a floor below risk assets and the US data-flow may remain mixed. Elsewhere, the OPEC+ meeting could put a cap on oil-sensitive currencies, while GBP is facing another crucial week with Brexit talks. In Australia, the RBA meeting may be a non-event.

USD: No news is bearish news



Week ahead bias Range next week 1 month target



Mildly Bearish 91.5000 - 92.5500 91.0000
  • The dollar is gently drifting to the lows of the year as investors re-allocate portfolios to recovery trades in the rest of the world. One key part of the story is that the Fed will keep rates very low well into the (hoped for) upturn and we should hear a little more on this story from Fed Chair Powell this week, who has various speeches and also appears before the Senate Banking Committee (with Mnuchin) to discuss the CARES act. We will also see the latest Beige Book ahead of the next FOMC meeting on Dec 16th.
  • We’ll also get some fresh US macro updates in the form of the November employment report and ISM releases. On the former, we’re slightly above the 500k consensus figure, but below consensus on both the ISM manufacturing and services indices. Indeed, the focus this week will be whether US state governors, now that Thanksgiving has passed, choose to impose harsher lockdowns to curb second waves. While more lockdown restrictions may stand to curb US equity markets, the prospect of the Fed being prepared to add more liquidity should limit any dollar upside. And given that DXY has fallen in seven of the last ten Decembers, we do favor gentle dollar downside into the end of the year.

EUR: Knocking on 1.20’s door



Week ahead bias Range next week 1 month target



Mildly Bullish 1.1840 - 1.2000 1.2000
  • EUR/USD continues to grind higher, buoyed by the broadly weaker dollar. Local inputs to the EUR story this week come from the EZ flash November CPI, seen still at -0.3% YoY, and a soft October retail sales figure. Neither should detract from the view that the ECB will offer fresh stimulus when it meets on Dec 10th.
  • The simmering threat of a veto of the EU Recovery Fund by either Poland or Hungary has yet to be taken seriously by FX markets (a deal is expected) and the EUR will also take note of any progress on Brexit. In the background, any good Chinese November PMI numbers or any OPEC+ outcome which does not hurt crude oil too badly would probably be greeted well by the trade-sensitive EUR.

JPY: Drifting



Week ahead bias Range next week 1 month target



Neutral 103.70 - 104.70 103.00
  • USD/JPY has returned to type, with one-month levels of implied volatility drifting back to the 5% area. We are, however, encouraged that USD/JPY continues to trade below 105, despite some reasonably large Japanese buying of foreign bonds according to portfolio flow data. This chimes with our view that the global exodus from the dollar will dominate many FX pairs and that USD/JPY could be headed to the 102 area.
  • Japanese data this week is industrial production and retail sales as well as some jobs data. This typically doesn’t drive the JPY and instead USD/JPY will probably take more notice of whether any fresh US lockdowns (or virus news – good or bad) has much of an impact on global equity markets.
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