FX markets have been reasonably quiet at the start of the new week, barring a jump in the Indian rupee on some defensive measures instituted by the Reserve Bank of India.
On the latter, Russia has yet to respond to the invite and continues to target energy infrastructure in Ukraine.
Instead, FX markets are preferring to concentrate on the cyclical story of decent US growth, above-target inflation and the prospect of the Federal Reserve hiking 75bp from current levels.
With US bond markets closed for the Columbus Day public holiday, it should be a quiet day for FX markets.
But DXY consolidation above 102 looks bullish, and our preference would be for a push up to 102.85 this week.
FX markets have been reasonably quiet at the start of the new week, barring a jump in the Indian rupee on some defensive measures instituted by the Reserve Bank of India. Energy prices do not quite know what to make of weekend developments, where Houthi strikes against Saudi Arabia have escalated local tensions, while at the same time US President Donald Trump has tried to present an 'energy ceasefire' between Russia and Ukraine. On the latter, Russia has yet to respond to the invite and continues to target energy infrastructure in Ukraine.
Instead, FX markets are preferring to concentrate on the cyclical story of decent US growth, above-target inflation and the prospect of the Federal Reserve hiking 75bp from current levels. Barring a big fall in energy prices this week, which seems unlikely, Wednesday's release of September US CPI inflation looks set to keep those Fed tightening expectations broadly intact. Our team see upside risks to the consensus of 0.2% month-on-month on the core reading. And as James Smith discusses in his weekly column, it may not be until next spring when tightening expectations can drop out of money markets. This points to the dollar staying supported by the cyclical story for a good while yet.
Other highlights this week include a new World Economic Outlook from the IMF and the US 3Q earnings season kicking off tomorrow when bulge bracket banks release.
With US bond markets closed for the Columbus Day public holiday, it should be a quiet day for FX markets. But DXY consolidation above 102 looks bullish, and our preference would be for a push up to 102.85 this week.
Chris Turner
