FX Talking: Another dose of pessimism

Once again, the dollar is left sitting pretty, where US domestic data also happens to be surprising on the upside and President Donald Trump is riding high in the opinion polls. The dollar’s biggest threat may come from the White House itself, although the President will largely vent his anger at the Federal Reserve for having kept rates too high, rather than trading partners.

EUR/USD is expected to remain sluggish as investors assess how the European industrial machine is going to creep into gear after stalling last year. 1.07/1.08 is possible here and bullish scenarios are having to be postponed. We’re bearish on GBP going into the summer and short HUF positions could well see a short squeeze as the central bank of Hungary battles high inflation.

Elsewhere, we see the medium-term USD/RUB profile slightly lower now on the back of looser fiscal policy, while the ZAR remains vulnerable into February/March.

Asian FX bears the brunt of the coronavirus scare – especially Thailand and its tourist industry. $/KRW could briefly trade 1200+ as we watch the fall-out on the real sector. Latam commodity exporters are also under fire, but we are keeping faith with BRL.

Economic recovery later this year should spark a BRL rally.