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FX Flows Fueled by G20 Optimism

  • Kathy Lien
  • 29 June 2019

Daily FX Market Roundup June 28, 2019

 

All of the major currencies either held onto or extended their gains on Friday on trade talk optimism.President Trump's sit down with President Xi is on Saturday and contrary to our expectations for profit taking, the bulls have held onto their positions with the hope of a positive resolution. The general belief is that it won't take much for Trump to agree to delay further tariffs on China and by the same token it doesn't take much to satisfy the market. As long as the meeting does not result in trade tensions escalating further, we could see a relief rally in currencies. We expect President Trump and President Xi to agree to restart trade talks but given Trump's general unpredictability, even if tariffs are delayed, they remain an ongoing threat to Chinese and global growth. However a trade truce is not the same as a trade deal and the chance of a full fledged trade agreement between the U.S. and China is slim. So unless we are wrong and Trump announces a reduction or elimination of tariffs over the weekend, the corresponding rally in the US dollar and improvement in risk appetite will be short-lived. USD/JPY, AUD/USD and other major currencies could receive a lift from a delay in tariffs but the outlook remains unchanged because delaying additional tariffs is not the same as lowering or removing them. If President Xi and President Trump clash at the meeting and walk away with no meaningful progress, we are in big trouble because USD/JPY, AUD/USD and other major currencies could crash lower.

 

The US dollar rebounded against most of the major currencies last week with the New Zealand and Australian dollars leading the gains. This price action is consistent with trade talk optimism, which means the near term sustainability of their gains in the coming week hinges on whether investors are satisfied with the outcome of G20. AUD/USD rose 8 out of the last 9 trading days but the move in NZD/USD was even stronger with the pair hitting a 3 month high after rising for 9 straight days. The Reserve Bank of Australia cut interest rates in May and is widely expected to lower rates again this week. However judging from the price action of AUD/USD, the market does not expect any additional moves.

 

Meanwhile USD/CAD dropped to its weakest level since October on Friday.There are countless reasons why the loonie is so strong from risk appetite to US dollar weakness, trade talk optimism, rising oil prices and the general robustness of Canada's economy. GDP growth beat expectations while wholesale sales rose strongly. Canada can't be immune to slower global growth forever. This will be a busy week for Canada with trade, employment and IVEY PMI numbers scheduled for release. If any one of these reports surprise to the downside in a meaningful way, we could see a nasty short squeeze in USD/CAD.

 

 

 

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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.