FX Markets: Consolidation Is The Name Of The Game

Currency markets consolidate

Currency markets were relatively quiet overnight, with major, commodity and regional Asian currencies content to continue consolidating their gains versus the US dollar. The Dollar Index fell 0.25% to support at 92.00 overnight and has edged another 0.10% lower to 91.90 this morning.

EUR/USD has edged through resistance at 1.1900, rising to 1.1925 today, and GBP/USD has risen 0.13% to 1.3392, just below resistance at 1.3400. Brexit trade talks continue and although no discernible progress was reported overnight, markets are continuing to price in an agreement. The noises from Brussels and London suggest headway is occurring, despite differences remaining. If a preliminary deal is reached, both euro and sterling should resolve higher. In this scenario I continue to expect sterling to outperform, rising quickly to 1.3800 and possibly 1.40000 in double-quick time.

The New Zealand dollar continues to star in the pro-cyclical commodity dollar segment. It rose through resistance at 0.7000 overnight, rallying 0.46% to 0.7007. Markets continue to reprice the amount of easing lower by the RBNZ, after the government asked them to “take a look” at the housing market in addition to their legislated mandates.

Retail banks have pre-empted the RBNZ by a good five months, and already substantially tightened mortgage approval conditions. More comments from the prime minister this morning on housing will be enough to keep the kiwi’s upward momentum intact.

Asian currencies are a mixed bag, like their stock markets this morning. The Chinese yuan has firmed slightly along with the Korean won, while the Thai baht and Philippine peso have eased, with the ringgit and Singapore dollar almost unchanged.

Although the data in currency markets is notable for its lack of direction, reflecting the US holiday, the general picture is one of consolidation at the top of their ranges versus the dollar. That suggests that currency markets are biding their time, and marshalling their forces for another dollar assault, which is likely to come next week.

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