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FOREX: USD Index Advances 0.7% This Week as Presidential Election Looms

FOREX
  • The greenback is finishing the week on a firm footing, as late weakness for treasury futures on Friday gradually permeates through to a subdued session for currencies. Overall, the USD index looks set to post a 0.7% advance this week, as the latest greenback recovery continues to gather momentum ahead of a week filled with significant event risk.
  • USDJPY has risen back towards session highs in sympathy, and the pair is consolidating a strong 1.8% rally on the week. The pair traded to a fresh cycle high on Wednesday, confirming a resumption of the current uptrend. Topside focus remains on 153.40, the 61.8% retracement of the downleg posted off the July 3rd high, and then 155.22, the Jul 30 high.
  • Yen volatility is likely to remain the clear focus for currency markets as the primary driver for sentiment remains core yields. Next week’s busy calendar includes snap legislative elections in Japan, the BOJ decision and key growth & employment data prints in the US.
  • Additionally, the UK budget will be announced, keeping high attention on GBP. Cable edged back towards 1.3000 before fading back towards 1.2970 into the close. While the GBPUSD move has been largely dollar driven, EURGBP’s close proximity to multi-year support at 0.8300 should keep sterling a must watch as fiscal developments unfold.
  • The USDCAD trend outlook remains bullish, and the pair traded to a fresh short-term cycle high this week following the BOC’s well telegraphed 50bp cut. Spot has narrowed the gap to 1.3946, the Aug 5 high and the next key resistance, before the psychological 1.400 mark comes into play.
  • In emerging markets, USDMXN had a late rally back towards 20.00 amid the greenback strength but also owing to a domestic senate vote renewed concerns surrounding the government’s reform trajectory. The peso is expected to remain vulnerable to risks surrounding the election and the year’s highs above 20.20 will remain a key level for the pair.
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