Europe/Latam Summary and Highlights 2 September
The USD moved gently higher in Europe against most majors, with trading thinned due to the U.S. holiday.
Latam/Europe Afternoon
The USD is holding at better levels in the Latam morning/European afternoon, with the U.S. and Canada on holiday. Traders do not see any fundamental move behind the USD multiday bounce, rather see it as a technical correction. Aside from data and DM central banks this month, FX traders are also focused on asset markets. U.S. Equities have recovered after the early August volatility and broken correlation with JPY movements. However, equity strategists have divergent opinions, with some noting that U.S. stocks do not do well after the 1 Fed rate cuts as a slowing economy dominates and hurt earning prospects. Any signs of a harder landing and equities could spur renewed USD losses against the JPY.
Elsewhere, the AUD has started to edge higher after the correction off recent highs against the USD. Though China manufacturing PMI was on the soft side, traders note that relative RBA to Fed rate prospects are more important and all the signs point to the RBA being slower than the Fed in easing in the next 6-9 months due to Aussie inflation.
Europe Morning Session
The USD moved gently higher in Europe against most majors, with trading thinned due to the U.S. holiday. The mood is for further small gains/consolidation ahead of Friday U.S. employment report, but the view is to test the USD downside if the data is on the weak side – ISM on Tuesday and Thursday also being watched. Last week move is seen as a trimming of USD shorts ahead of a crucial couple of weeks. Traders say a weak U.S. employment report would increase speculation about a 50bps cut on September 18 and hurt the USD, while numbers in line with expectations would likely not produce much FX reaction but would confirm the prospects of a 25bps Fed cut.
The JPY led the losses in thin technical European trading, with the focus on the broader USD trend. However, the multi week mood remains for further JPY gains and more so than on EUR/USD. The sense remains that the big picture JPY rally has not been completed and the market wants to test the 142 level on USD/JPY.
Elsewhere, AFD position as the largest party in one of the German state election has not impacted the EUR, as other parties are expected to form a coalition.