Credit Agricole

Ahead today it will be quiet in terms of market moving data releases and speeches. This implies it will stay about external factors such as global risk sentiment as for instance driven by developments on the Covid front to drive most of FX. Even though sentiment has been unstable for most of the last few weeks, conditions have been stabilizing somewhat of late. While this is not dependently driven by easing virus concerns, it may still be the case that the ongoing US earnings season, which is just about to enter its most active phase, will trigger a change in focus, at least temporarily.

On top of that retreating longer term inflation expectations as for instance implied by 5Y US inflation swaps, if sustained, may help supporting the view that the Fed is in no hurry to prepare markets for a less dovish stance on monetary policy. All of the above speaks against chasing risk sensitive currencies lower with our base case remaining in favour of fading downside in the NOK. This is not only due to scope for risk sentiment to improve anew but also as the Norges Bank remains on track to consider tightening monetary policy as soon as in September. While we were stopped out of our short EUR/NOK trade this week, we stay long NOK/SEK. Well supported central bank rate expectations should ultimately help compensating for increased volatility’s dampening impact on the currency.


USD continues its rally on a fifth day, though overnight price action was not far from inspiring. Vols eased overnight after the risk off tone in the first half of the week with US yields and equities trading close to flat. In the G10 space, AUD underperformed the most following a miss in June retail sales. Our economists believe this strengthens the case for the RBA to double down on dovish policy messaging.

With no clear catalysts between now and the ECB tomorrow, we expect price action to remain choppy and lack meaningful direction. KRW strong early exports data released overnight has been insufficient to alleviate investors’ concerns about the new virus wave that’s weighing on EM FX. PLN and HUF remain vulnerable to budget headlines, while we see the important CPI print for ZAR today.