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In view of analysts at Danske Bank, the US-China ceasefire on tariffs is a key signal to the USD as the burden of correcting the US current account deficit is now back on the currency which should, all else being equal, act as a drag on the dollar.

Key Quotes

“The knee-jerk reaction last night was to send, e.g. EUR/USD slightly higher. However, the still bumpy road to an outright trade deal means that FX markets will still price in some non-negligible risk of the trade war blossoming up again down the road. Besides digesting the trade talks, the USD will also keep an eye on US ISM, which is set to stay strong.”

“We maintain that current Fed pricing is too soft given the strength of the US economy and look for the dollar to fight back near term: Powell speaking on Wednesday and Friday’s job report key in this respect.”

“The OPEC meeting on Thursday could prove an important first step in stabilising oil prices if markets sense a genuine willingness among OPEC+ members to rein in production.”

“Also, later in the week, the Reserve Bank of Australia and Bank of Canada are both widely expected to keep rates on hold and their currencies should mainly take their cue from USD moves.”