Risk-on sentiment returns
Tuesday 26 May 2020
I mentioned yesterday in my opening remarks here that it was notable that "we're not exactly seeing a lot of risk-off sentiment" despite escalating US-China tensions and COVID-19 fallout concerns. Well, some good news re vaccine development and some conciliatory comments out of HK re strikes seems to have brought the happy clappy brigade back out in force and we've seen risk-on return as equities power their way higher.
All seems quite bizarre to me given the ongoing backstories but we know markets are fickle and seem to be looking for good news these days. FX markets are responding accordingly and we're seeing some USD, JPY and CHF supply as risk-on plays prevail as European markets get underway.
GBPUSD has broken out of the 1.2225 and 1.2250 resistance points to look at the next line of offers at 1.2280 all helped by the risk-on GBPJPY demand that has also seen USDJPY nudge higher beyond 107.80. Still some good two-way pips to be had by selling rallies but the current demand needs to be respected. EURGBP has broken down through 0.8930 as GBP demand outstrips EUR and has looked at 0.8900 (1.1235) but with month-end demand in the pipeline this week I still expect any break lower to be limited.GBPJPY was already finding support from some core pair demand as I mentioned yesterday but sellers coming second atm as the current risk-on surge makes good headway to 132.38.
I stay poised to sell GBP rallies overall and buy back in the dips as ever but patience continues to be a virtue and entry level key as always. Current risk-on demand needs to be respected so happy to play a waiting game if necessary.
USDJPY has held 107.50 again and now back above 107.80 on the better sentiment/Yen selling but decent offers nearby still. EURJPY has also enjoyed the risk-on rally but finding the expected sellers around 118.00 as I type.
EURUSD held those 1.0871 lows and has drifted higher on the better risk. but still seems to be making hard work of it and failing into 1.0950 so far with large option expiries today between 1.0935-45 very much in play and helping to contain. USDCHF found sellers into 0.9730 with EURUSD moving higher but the retreat has been tempered into 0.9680 again as EURCHF nudges above 1.0600 again on the better risk. No doubt the SNB are still "smoothing" still too.
AUDUSD has broken back up over 0.6550 and now through 0.6600 helped by the risk-on AUDJPY demand. USDCAD failed above 1.4000 again and on the retreat now testing 1.3900 as I type with some CADJPY demand and USD supply giving it a double push lower.
Let's continue to be careful out there in all things. Staying safe must be our main priority still.
Interbank rates: 08.40 BST