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FOREX: Currency Markets Brush Off Weaker Equity Sentiment

FOREX
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  • Despite some sharp weakness for major equity indices on Friday, currency markets remained largely unfazed. A tight 33 pip range for the USD index is evidence of this, with the DXY little changed on the session.
  • Weaker risk sentiment has moderately weighed on the Australian dollar, keeping AUD/USD firmly on course for a test of 0.6199, the cycle low. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection.
  • In contrast, GBP is among the best performers in G10 and showed strength into the WMR fix, potentially buoyed by value date month/year-end flows. The trend structure in GBPUSD remains bearish and today’s bounce appears technically corrective. Initial resistance is at 1.2621, the 20-day EMA.
  • In emerging markets, USDMXN had a brief spell of strength on the pessimistic price action in equity markets, rising to 20.40 before sharply reversing course back to 20.20 as any FX market momentum quickly waned.
  • Separately, month-end USD demand by importers and ongoing concerns over India’s widening trade deficit pressured the rupee to a fresh record low, with USD/INR’s rise of as much as ~0.5% earlier on in the session its steepest since February 2023. Rallying spot was accompanied by a sharp rise in implied vols, with 1-month vols nearing 4% and currently at its highest levels since August 2023. According to Reuters, the rupee was hurt today by “persistently strong dollar demand” in the NDF market while likely intervention by the RBI capped the currency's losses.
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  • Despite some sharp weakness for major equity indices on Friday, currency markets remained largely unfazed. A tight 33 pip range for the USD index is evidence of this, with the DXY little changed on the session.
  • Weaker risk sentiment has moderately weighed on the Australian dollar, keeping AUD/USD firmly on course for a test of 0.6199, the cycle low. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection.
  • In contrast, GBP is among the best performers in G10 and showed strength into the WMR fix, potentially buoyed by value date month/year-end flows. The trend structure in GBPUSD remains bearish and today’s bounce appears technically corrective. Initial resistance is at 1.2621, the 20-day EMA.
  • In emerging markets, USDMXN had a brief spell of strength on the pessimistic price action in equity markets, rising to 20.40 before sharply reversing course back to 20.20 as any FX market momentum quickly waned.
  • Separately, month-end USD demand by importers and ongoing concerns over India’s widening trade deficit pressured the rupee to a fresh record low, with USD/INR’s rise of as much as ~0.5% earlier on in the session its steepest since February 2023. Rallying spot was accompanied by a sharp rise in implied vols, with 1-month vols nearing 4% and currently at its highest levels since August 2023. According to Reuters, the rupee was hurt today by “persistently strong dollar demand” in the NDF market while likely intervention by the RBI capped the currency's losses.