FX market outlook

FX market outlook

Posted on Monday, August 28 2017 at 8:14 am GMT+0000

Euro holds above 2½-year high; oil prices mixed in wake of Hurricane Harvey

As Asian trading was about to end for the day, the euro managed to hold above the two and a-half-year high, despite being under pressure in early trades. Euro/dollar was last trading at 1.1926, after reaching 1.1940 on Friday, levels last recorded in January 2015. Oil prices surged in early trading but gave up on some of the gains as the Asian session was coming to a close.

The euro came under some pressure during the Asian session, but managed to stay above the $1.19 mark it breached on Friday following European Central Bank President Draghi’s speech. While Mr. Draghi followed his counterpart, Janet Yellen in keeping their lips tight on the monetary policy outlook and focus on the financial regulation instead, the fact that he failed to talk down the single currency down gave euro-bulls more reason for going long. Forex markets welcomed that the ECB Head was neither dovish nor hawkish. This implies critical months ahead as new data gets released and assessed for potential clues of central banks’ moves.

The euro was trading at $1.1926 ahead of the European open, just shy of Friday’s intra-day high of $1.1940. Meanwhile, the dollar extended its losses following Friday’s plunge, with the greenback last trading at 109.09 yen.

The yen gained against the US currency despite the dovish speech by Bank of Japan Governor Haruhiko Kuroda. He pledged that the very accommodative monetary policy would continue “for some time” as the BOJ is far from its inflation target. Mr. Kuroda also made a parallel between the Japanese and US economy, assessing the latter is in a much better situation. This comes as a contrast to the other two key central bankers that kept very silent on their monetary policy stance.

While UK markets are closed for business due to a bank holiday, the UK government is positioning itself for the next round of Brexit talks. David Davis, Brexit secretary, will be in Brussels today calling for “flexibility and imagination” on both sides to make further progress in this process. The latest hold came on discussions around the Northern Ireland border. The pound was under pressure following a spike in Friday’s trading. Pound/dollar was trading at 1.2895 ahead of the Asian close.

In the wake of the weakness in the US currency, both the aussie and kiwi rose and were last trading at $0.7939 and $0.7237, respectively.

Oil prices had a mixed performance ahead of the European session after surging in early trades. As a result of disrupted supply due to Hurricane Harvey in the Gulf of Mexico, WTI surged to $48.20 a barrel and Brent was at $52.84. However, later WTI declined and last traded at $47.63 a barrel, while Brent was still up at $52.42. Different news channels have reported that around 20% of production in the heart of US oil fields has been shut-down, but that the impact on refineries is much bigger and it make take longer for them to come back online. This could create a glut of unrefined crude oil that would weigh on price.

Gold was up on the day and was testing the $1,300 an ounce mark in the wake of the dollar weakness. The precious metal was last trading at $1,297.89.