Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

FX & Rates

Short term USD developments must be noted following the end of the week price action, particularly in Asia where there has been a bullish break on USDCNH which is now at risk of rallying to almost 6.62...

Short term USD developments must be noted following the end of the week price action, particularly in Asia where there has been a bullish break on USDCNH which is now at risk of rallying to almost 6.62... 

Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

The US Dollar NEER has since 12th February appreciated about 2.3% to a 4-month high and its inverse correlation with the S&amp;P 500 (-4.2%) has re-established itself. This is in line with our forecast that the Dollar’s sell-off in early February was “a small, short-term correction” rather than “another prolonged downtrend”. If anything we were not bullish enough.We are also sticking with our view “that material Dollar depreciation may not resume for another couple of months, until it becomes clearer that a matrix of loose US fiscal policy but still low US interest rates will dent the Dollar’s attractiveness”. At the same time we think the slow start of the vaccination process in many major developed and EM economies could delay a meaningful rebound in global confidence and GDP growth and continue to act as a brake for emerging market currencies as a whole. Macro data indeed point to still weak global growth in early 2021, in our view. However, the significant build-up of private sector savings in developed economies offers the prospect of pent-up demand being unleashed once vaccination programs have matured and governments have materially eased domestic lockdown measures. Moreover, US economic activity – as measured by income and consumption – recovered in January-February, albeit from a low base, thanks in part to fiscal stimulus measures, a strengthening of the labour market and reasonably loose social distancing measures. It is early days but so far financial markets’ reaction to British Chancellor of the Exchequer Sunak’s UK Budget announcement on 3rd March 2021 has been pretty tepid. This is in line with recent years’ budgets, with Sterling, the FTSE 100 and UK Gilts moving little on budget day and in subsequent trading sessions, and in line with our forecast that this year’s “two-pronged transitional” budget would be no different.We maintain our view that policies largely outside of the Chancellor’s remit – particularly the relative pace of vaccination in the United Kingdom and by extension the likely timeline for a relaxation of still stringent lockdown measures and recovery in domestic economic growth – will continue to drive domestic financial markets, including Sterling.

The US Dollar NEER has since 12th February appreciated about 2.3% to a 4-month high and its inverse correlation with the S&amp;P 500 (-4.2%) has re-established itself. This is in line with our forecast that the Dollar’s sell-off in early February was “a small, short-term correction” rather than “another prolonged downtrend”. If anything we were not bullish enough.We are also sticking with our view “that material Dollar depreciation may not resume for another couple of months, until it becomes clearer that a matrix of loose US fiscal policy but still low US interest rates will dent the Dollar’s attractiveness”. At the same time we think the slow start of the vaccination process in many major developed and EM economies could delay a meaningful rebound in global confidence and GDP growth and continue to act as a brake for emerging market currencies as a whole. Macro data indeed point to still weak global growth in early 2021, in our view. However, the significant build-up of private sector savings in developed economies offers the prospect of pent-up demand being unleashed once vaccination programs have matured and governments have materially eased domestic lockdown measures. Moreover, US economic activity – as measured by income and consumption – recovered in January-February, albeit from a low base, thanks in part to fiscal stimulus measures, a strengthening of the labour market and reasonably loose social distancing measures. It is early days but so far financial markets’ reaction to British Chancellor of the Exchequer Sunak’s UK Budget announcement on 3rd March 2021 has been pretty tepid. This is in line with recent years’ budgets, with Sterling, the FTSE 100 and UK Gilts moving little on budget day and in subsequent trading sessions, and in line with our forecast that this year’s “two-pronged transitional” budget would be no different.We maintain our view that policies largely outside of the Chancellor’s remit – particularly the relative pace of vaccination in the United Kingdom and by extension the likely timeline for a relaxation of still stringent lockdown measures and recovery in domestic economic growth – will continue to drive domestic financial markets, including Sterling.

The interplay between the worlds major currencies and their recent behaviour begs questions as to what is going on with the Euro and the Renminbi. Remember that in a Currency War "up" may not be seen as "good".

The interplay between the worlds major currencies and their recent behaviour begs questions as to what is going on with the Euro and the Renminbi. Remember that in a Currency War "up" may not be seen as "good".

In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.The Dollar NEER has weakened about 0.9% since 4th February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.

In the past nine weeks major currencies and global equity markets have traded broadly in line with our expectations. The US Dollar has traded in a very narrow range, confounding consistently bearish market expectations. Similarly, most emerging Asian currencies have barely moved, pointing to the ability and willingness of Asian central bank to intervene in FX markets in a bid to manage both the volatility and directionality of their currencies. Conversely, emerging currencies, particularly in Latin America, have been prone to sharp pull-backs.Stretched currency valuations and still very weak global economic growth in January – which tallies with our forecast – has likely been a driver of currencies’ performance. In the past five weeks the inverse correlation between the Dollar and S&amp;P 500 and between the Dollar and the steepness of the US Treasury yield curve has broken down.Our take is that the broad-based diversification out of Dollars, driven by buoyant global risk appetite and market concerns about the Dollar’s real carry, has stalled and slightly reversed. We suspect that central banks and sovereign wealth funds may have re-focussed on domestic factors, which has in turn led to a rotation between other reserve currencies. This includes a rotation out of Euros and move into Sterling and a rotation out of the safe haven Swiss Franc and in particular Japanese Yen into commodity reserve currencies – namely the Canadian and Australian Dollars and Norwegian Krone – and New Zealand Dollar. These four currencies’ NEERs are now near the top end of their three-month ranges. In each case specific drivers have been in play, “in our view. Our analysis suggests that the Norwegian Krone may still be “cheap” relative to the current price of Brent crude oil.Figure 8 suggests that a rotation in and out of other (EM) currencies which were 1-2 months ago trading at the extremes of their ranges may have also taken place.The Dollar NEER has weakened about 0.9% since 4th February and its inverse correlation with the S&amp;P 500 (+1.2%) has re-established itself. We think this is a short-term correction, with another prolonged Dollar downtrend still a couple of months away.

Dollar’s Recent Weakness – Blip, Not New Trend

Cross Asset Strategy

While nominal bond yields rise, real yields across the US curve remain negative thus giving a sign that the USD is ready to weaken again and Gold to bounce back. In an environment of now rising equities this provides a more 'risk positive' environment in which Asian markets are likely to perform well after a shaky end to January. India in particular stands out from an equity index view point and possibly even a currency perspective.

While nominal bond yields rise, real yields across the US curve remain negative thus giving a sign that the USD is ready to weaken again and Gold to bounce back. In an environment of now rising equities this provides a more 'risk positive' environment in which Asian markets are likely to perform well after a shaky end to January. India in particular stands out from an equity index view point and possibly even a currency perspective.

United States

The euro is the official currency of the European Economic & Monetary Union.  The US dollar is the official currency of the United States of America.

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EURO/US DOLLAR (EURUSD CURNCY)

USD Breaks and Developments

Recent price action developments point to a stronger USD. Particular attention should be given to USDCNH where the 'pain' is likely to be greatest

Shyam Devani

US and UK: The Comeback Kids

Dollar has defied bearish expectations and US economy has rebounded while Sterling and UK financial markets beating to drum of vaccination program...

Olivier Desbarres

FX: And the Winner Is...?

The interplay between the worlds major currencies and their recent behaviour begs questions as to what is going on with the Euro and the Renminbi.

Shyam Devani

Dollar’s Recent Weakness – Blip, Not New Trend

In past 2 months range-bound USD and Asian currencies, pull-back prone EM currencies and buoyant equities have performed in line with our forecast....

Olivier Desbarres

Golden Opportunities

Negative real yields and rising equities indicate a weaker USD and a higher Gold price. In Asia India looks very interesting

Shyam Devani

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