Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

FX & Rates

Tables seem to be turning as German yields look to be on the rise while US yields struggle to breakthrough (at least so far)This seems to be a combination of adjusting central banks and possibly also market positioning/assumptions.

Tables seem to be turning as German yields look to be on the rise while US yields struggle to breakthrough (at least so far)This seems to be a combination of adjusting central banks and possibly also market positioning/assumptions.

Germany and US Yields Point to Higher EURUSD

Technical Analysis

Recent price action developments give further confidence to the bias that the USD is likely to slipA break below 92.46 on the USD Index will be the next short-term development to watchFriday’s bearish outside day indicates that we will fall through soon.

Recent price action developments give further confidence to the bias that the USD is likely to slipA break below 92.46 on the USD Index will be the next short-term development to watchFriday’s bearish outside day indicates that we will fall through soon.

Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

We reiterate our view of the US dollar staying in a range despite the brief breach last week. We expand our baseline view to incorporate two risk scenarios, equivalent to the two ends of the dollar smile. From the point of view of EM currencies, the best-case scenario is our baseline view of the dollar staying rangebound. We also expound on the recent increase in the correlation between commodities and EM currencies and what it means for EM FX.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

We reiterate our view of the US dollar staying in a range despite the brief breach last week. We expand our baseline view to incorporate two risk scenarios, equivalent to the two ends of the dollar smile. From the point of view of EM currencies, the best-case scenario is our baseline view of the dollar staying rangebound. We also expound on the recent increase in the correlation between commodities and EM currencies and what it means for EM FX.Separately, the attached file is a snapshot of the EM currency market in which we seek to identify the leaders and laggards among currencies by comparing the performance of each to its history as well as to other currencies based on their respective betas to an EM currency index.

FX Dashboard: US Dollar, Commodities, and EM Currencies

It is sometimes the case that Gold and the USD are inverted. That is not always true, but it is often.It is with this in mind following the note <a href="https://www.smartkarma.com/insights/gold-positive-price-action" target="_blank" data-smartkarma-citation="insights:56598" rel="noopener">Gold: Positive Price Action</a> that the chart below of the USD Index is particularly interesting…

It is sometimes the case that Gold and the USD are inverted. That is not always true, but it is often.It is with this in mind following the note Gold: Positive Price Action that the chart below of the USD Index is particularly interesting…

Sometimes it is not what the market does but rather what the market does not do that can be more telling.The USD is down almost across the board following concerning sentiment data from the US which also took yields lower. BUT…Why is USDCNH unchanged?It brings us back to the conversation of ‘currency wars’The Renminbi basket has been trading near its multi year highs for several weeks. It is perhaps why the Chinese changed their RRR policy a few weeks ago. Recent data reflects a more relaxed recovery in China as it is worse than expected – see retail sales and industrial production as latest examples. The Covid situation in China is far from over as news, including partial closure of ports, clearly shows. In basic terms China is uncomfortable with its current situation and needs support. Given the rise of the Renminbi in broad terms over the past year, it appears now might be the time for that support to come in the form of a weaker currency.It is with this in mind that we must pay further attention to EURCNH which is turning from the covid panic lows of 2020. What business does it have trading around 7.60? The price action developments suggest we move higher. The technicals on the chart suggest the same. The logical path following the height of the Renminbi basket also points to the same, especially if this is the start of a decent enough short term move down on the USD.This possible tactical ‘rotation’ or ‘USD diversification’ on part of China (if indeed that is what we are seeing) could add further support to EURUSD, which once again has held on to good levels at 1.17.

Sometimes it is not what the market does but rather what the market does not do that can be more telling.The USD is down almost across the board following concerning sentiment data from the US which also took yields lower. BUT…Why is USDCNH unchanged?It brings us back to the conversation of ‘currency wars’The Renminbi basket has been trading near its multi year highs for several weeks. It is perhaps why the Chinese changed their RRR policy a few weeks ago. Recent data reflects a more relaxed recovery in China as it is worse than expected – see retail sales and industrial production as latest examples. The Covid situation in China is far from over as news, including partial closure of ports, clearly shows. In basic terms China is uncomfortable with its current situation and needs support. Given the rise of the Renminbi in broad terms over the past year, it appears now might be the time for that support to come in the form of a weaker currency.It is with this in mind that we must pay further attention to EURCNH which is turning from the covid panic lows of 2020. What business does it have trading around 7.60? The price action developments suggest we move higher. The technicals on the chart suggest the same. The logical path following the height of the Renminbi basket also points to the same, especially if this is the start of a decent enough short term move down on the USD.This possible tactical ‘rotation’ or ‘USD diversification’ on part of China (if indeed that is what we are seeing) could add further support to EURUSD, which once again has held on to good levels at 1.17.

United States

The U.S. Dollar Index(USDX) indicates the general int'l value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. The ICE US computes this by using the rates supplied by some 500 banks. FOR REAL TIME SEE EIS ICEA<GO>.

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Dollar Index (DXY CURNCY)

Germany and US Yields Point to Higher EURUSD

There are early signs that yields in Germany are diverging from the US just as we saw in April this year. Is this the start of a decent rally for...

Shyam Devani

USD Index Looking Weaker

USD weakness is coming through after seeing a rally that was similar to Q1. Watch for the next short term breaks to the downside

Shyam Devani

FX Dashboard: US Dollar, Commodities, and EM Currencies

We discuss our base-case view for the US dollar along with the risk scenarios and their implications for EM currencies. We also discuss the...

Gautam Jain, PhD, CFA

USD Index - A Repeat?

Indications on the USD Index chart point towards the possibility that it may well have topped out. The 4.7% rally is almost exactly the same as...

Shyam Devani

What About the Renminbi?

Latest developments across FX markets lead us to ask questions about recent Renminbi strength and if that is about to change. Watch EURCNH

Shyam Devani

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