US AM Digest: JPY up on Safe Haven Bid, GBP Dips on Incoming BoE Member

US Market Snapshot via IG: DJIA 0.1%, Nasdaq 100 0.5%, S&P 500 0.2%

Major Headlines

  • Shanghai Composite falls into bear market territory
  • Incoming BoE member tilts to the dovish side

JPY: Yet again the uncertainty surrounding trade wars continues to see the JPY outperform across the board on safe haven flow amid the fallout seen in equity markets, whereby the Shanghai Composite fell into bear market territory overnight (falling 20% from January peak). However, USDJPY remains well within its recent range, while 1-month risk reversals continue to suggest that further declines are in store for the pair. Latest from President Trump is that the US are finalising studies with regards to EU auto tariffs, which in turn has kept the pressure on EURJPY, slipping below 1.28.

GBP: Markets were given a first glimpse of the bias of incoming Bank of England rate setter Jonathan Haskel, who will replace one of the most hawkish members on the committee, Ian McCafferty, when his term expires in August. One thing that was made apparent is the wide difference in views with Haskel leaning on the dovish side, having stated that there may be more slack in the economy, weakening the case for an interest rate rise. This was in stark contrast to McCafferty who stated that the BoE should not dally in raising rates. As such, with greater focus on the incoming rate setter, GBPUSD fell to its lows of the days, falling from 1.3276 from 1.3206. However, GBPUSD had since recovered to the mid-1.32s, given the 1.1bln option expiry sitting at 1.3250.

EUR: Recent gain in momentum for Euro sceptic Lega, following municipal election victories over the weekend have continued to pressure BTPs, which in turn has led to continued widening in German-Italian bond spreads. As such, this has kept EURUSD on the back foot with the currency failing to consolidate above 1.17. Reminder, over 12bln worth option expiries will be rolling off tomorrow from 1.1570-1.1690.

DailyFX Economic Calendar: Tuesday, June 26, 2018 – North American Releases

DailyWebinar Calendar: Tuesday, June 26, 2018

IG Client Sentiment Index: GBPUSD Chart of the Day

GBPUSD: Data shows 70.3% of traders are net-long with the ratio of traders long to short at 2.37 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.41763; price has moved 6.7% lower since then. The number of traders net-long is 4.8% higher than yesterday and 1.5% higher from last week, while the number of traders net-short is 10.7% higher than yesterday and 13.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.

Five Things Traders are Reading

  1. DXY Index Finds Support at Daily 21-EMA as Trade Concerns LingerbyChristopher Vecchio, CFA, Sr. Currency Strategist
  2. Upbeat U.S. Consumer Confidence to Curb EUR/USD Rebound by David Song, Currency Analyst
  3. GBP Sellers Welcome Incoming Dovish BoE Rate Setterby Justin McQueen, Market Analyst
  4. Gold Loses Safe Haven Appeal as Trade War Boosts JPY, CHF, EURby Martin Essex, MSTA , Analyst and Editor
  5. Oil Trading Forecast – OPEC and Trade Wars Will Dominate Direction” by Nick Cawley, Market Analyst

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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