The US Dollar (USD) is softer overall, crude oil is lower while the ILS is some 2% stronger and risk appetite is firmer at the start of what is likely to be a busy week for markets, UOB Group’s FX analysts Quek Ser Leang and Peter Chia note, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
DXY remains on track to drop to the 90-95 zone
“Middle East tensions persist but investors appear to be more comfortable with the contained nature of the confrontation so far. That’s not to say that the situation is easing—or might not deteriorate. President Trump said that Isreal and Iran may need to ‘fight it out’ before a settlement is found and remarked that while the US was not involved in the situation now, that could change. There is no obvious pressure for a quick de-escalation from the US at this point.”
“Calmer sentiment for now allows investors to refocus on this week’s event risk—policy decisions from the BoJ, Fed, SNB and BOE as well as the G7 meeting in Canada. Note that Chile and Sweden also hold central bank policy meetings this week. Among the major central banks, only the SNB is expected to ease policy—swaps are fully priced for a 1/4 point cut, returning the target rate to zero. Communication on the policy outlook will be important for the other central banks, especially the Fed.”
“The G7 no longer represents major event risk for FX but trade talks are likely to feature prominently in the discussions among leaders and progress here would add to the positive risk mood. Geo-political risk gave the USD a small lift from a new cycle low last week but impact was short-lived and broader USD negative considerations remain. The technical downtrend in the DXY remains intact and the outlook remains negative. Absent a significant, further flare up in geo-political risks, we think the DXY remains on track to drop to the 90-95 zone in the next few months.”
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