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FOREX: Equity Rally Provides Stability in FX, Ranges Remained Contained

FOREX
  • The impressive recovery for major equity benchmarks late Wednesday and subsequent consolidation at the highs this morning has provided a sense of calm across currency markets. In line with this sentiment the Japanese yen is softer on the day, and USDJPY currently trades in the middle of its relatively contained 80 pip range, after rising as high as 143.04 in early European trade.
  • In similar vein, both EURCHF and USDCHF are around 0.25% higher today, as bullish positions against funding currencies renews its appeal.
  • EURUSD trades within an 18 pip range ahead of today’s ECB decision and press conference, with a deposit rate cut of 25bp well baked in to expectations.
  • We would not expect any signs of the ECB pre-committing to another cut in October as with inflation close to target there is no urgency to do so. Moreover, indications of back-to-back cuts would undermine President Lagarde’s previous assertion that policy rates will not necessarily move lower in a linear fashion.
  • With the bar for any meaningful surprises particularly high, single currency volatility is likely to remain low, with this view emboldened by the impressive 13.5bn of options rolling off between 1.0945/1.1055 at today’s NY cut.
  • Standing out in emerging markets, the South African rand is lower on the session after failing to capitalise on the recovery in equities. USDZAR is +0.5% on the session with a survey showing inflation expectations declining further providing support.
  • Aside from the ECB, US PPI data and initial jobless claims highlight the economic calendar.
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