· The dollar struggled on Friday to get on the front foot, and was poised for a weekly loss against major currencies after the U.S. Federal Reserve joined global peers with plans to cut interest rates to support flagging economic growth.
A decline in benchmark 10-year Treasury yields below 2% and a rise in gold above heavy technical resistance to a near six-year high suggested the dollar could face a period of prolonged selling pressure, traders and analysts say.
The focus now shifts to whether the United States and China can resolve their trade row at a Group of 20 leaders summit in the western Japanese city of Osaka next week, but analysts caution that chances of a decisive breakthrough are low.
· “Dollar selling is not broad-based yet, but the move in gold shows speculative intent to test the dollar’s downside is increasing,” said Yukio Ishizuki, senior foreign exchange strategist at Daiwa Securities.
“We have to wait for G20, but it’s difficult to envision a decisive outcome. That will be a chance to put on new positions to sell the dollar.”
· For the week the dollar was down 1.4% versus the yen, on course for the biggest decline since late March.
The dollar index, which measures the U.S. currency against six of its peers, was at 96.586, down 1.0% on the week.
· USD/JPY is seen printing fresh five-month lows ahead of the 107 handle, as the bears regain control amid risk-off action in the Asian equities and US equity futures, with the US-Iran geopolitical tensions flaring up. Markets ignore dismal Japanese data.
The pair is stuck in bearish channel with the 5- and 10-day moving averages trending north, meaning the path of least resistance is to the downside and further losses could be seen.
The relative strength index, however, is now reporting oversold conditions with a below 30-print on daily, hourly and 4-hour charts.
As a result, minor bounce to 107.50 could be seen before a potential drop below 107.00.
· Japan will express concern if currency rates move rapidly in a way that deviates from economic fundamentals, the country’s top currency diplomat said on Friday.
Masatsugu Asakawa, vice finance minister for international affairs, said bond and currency markets have been reacting to heightening market expectations that the U.S. Federal Reserve will cut interest rates as early as next month.
“If the Fed does cut rates in July because it feels doing so would be necessary to prevent a U.S. economic downturn, that’s an appropriate monetary policy decision,” Asakawa told a news conference.
“But if exchange rates are moving rapidly in a way that cannot be explained by economic fundamentals, Japan has no choice but to voice concern,” he said.
· As tensions between the U.S. and Iran escalate, President Donald Trump approved military strikes on several Iranian targets — but abruptly pulled back from launching them on Thursday night, The New York Times reported.
The Times report, published late Thursday, cited multiple senior administration officials involved in or briefed on the deliberations of the strikes. It said Trump had earlier approved the attacks in retaliation to Iran shooting down an unmanned American spy drone, and officials were still expecting the operation to go ahead as late as 7 p.m. ET.
· Fervent Brexit campaigner Boris Johnson and foreign minister Jeremy Hunt emerged on Thursday as the only two candidates left in the race to become British prime minister, with the flamboyant Johnson odds-on favourite to win next month.
Whoever wins will have to find a solution to the Brexit turmoil, Britain’s biggest political crisis in a generation, which eluded May for three years and ultimately led to her downfall.
· Bank of England Governor Mark Carney has dismissed a claim by Boris Johnson, the front-runner in the race to become prime minister, that Britain can avoid the hit of European Union trade tariffs in the event of a no-deal Brexit.
Carney told the BBC that leaving the EU without a transition deal should be a choice taken with “absolute clarity” about what it would mean for Britain’s economy.
The central bank governor said there would be long-term as well as short-term damage for Britain’s economy from a no-deal Brexit and many companies were not fully ready for such an abrupt shift.
· China’s President Xi Jinping has departed North Korea, following a two-day state visit, Chinese state media reported Friday.
· Deputy Italian Prime Minister Matteo Salvini on Friday vowed to quit the government unless he was able to push through tax cuts for at least 10 billion euros ($11 billion).
· Oil prices reversed earlier gains on Friday but benchmark Brent crude was still set for its first weekly gain in five weeks amid rising tensions in the Middle East and on hopes for a drop in U.S. interest rates that may stimulate global growth.
Brent crude was down 20 cents, or 0.31%, at $64.25 a barrel by 0630 GMT. The global benchmark jumped 4.3% on Thursday, leaving it set for a weekly gain of almost 4%.
U.S. West Texas Intermediate crude was down 16 cents, or 0.28%, at $56.90 a barrel. But the U.S. benchmark surged 5.4% on Thursday and is on track for a more than 8% increase this week.
· “The recent ups and downs in oil pricing indeed reflect the unsteady state in the oil markets (given) rising geopolitical tensions...and concerns of slowing oil demand due to trade conflicts,” said Victor Shum, Singapore-based vice president of energy consulting at IHS Markit.
Reference: CNBC, Reuters, FXStreet
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