ideaglobal.com // FX Summary. Thoughts that the G8 still favor a strong dollar and weak euro environment has helped promote dollar gains against the EUR, CHF and GBP. A break of 12,000 on Nikkei should help to promote an eventual test and break of 126 on USD/JPY. Thoughts that the G8 still favor a strong dollar and weak euro environment has helped promote dollar gains against the EUR, CHF and GBP. There had been concerns that the G8 had started a campaign to talk the dollar lower following BoE George's comments last week. But comments from ECB's Duisenberg last week and Eurogroup's Reynders yesterday has led to a thinking that the European's favour a weak euro. Latam woes has not helped to weaken the dollar and this is likely to lead to an unloading of recent spec EUR/USD longs.
We continue to believe that the dollar will benefit either from a safe haven perspective or from a view that the US economy will eventually recover (helped by a heavy dose of Fed easing). By highlighting contained inflation and muted growth rebound Greenspan can help the next leg of easing and thus (1) help to bring down rates at the long-end and (2) take out the aggressive tightening priced in by the market for next year. This should only further help the dollar and we continue to see a bias towards new lows on EUR/USD.
EUR/USD is likely to remain rangebound unless there is a break below 0.8480. JPY bears were not aggressive overnight concerned that BoJ's Hayami may spoil the party. The BoJ governor did little to indicate further monetary easing nor make a strong JPY statement. A break of 12,000 should help to promote an eventual test and break of 126 on USD/JPY with there being little incentive for financial markets to strengthen the JPY significantly. After moving towards a neutral bias on the SGD (Singapore dollar) the government has announced a bleak outlook for non-oil exports in Q3 and Q4. The electronics and US economic slowdown are affecting the rest of Asia and is something that will continue to constrain upside on USD/JPY. For further information contact Divyang Shah. +44 207 664 0266 dshah@ideaglobal.com