North America - Feb 07, 2018

The dollar traded mostly firmer as U.S. equity future declines, a shaky finish across Asian bourses and a tumble from intraday highs by the main European stock indexes suggest the risk-off phase may not be over yet. EUR-USD fell to a low of 1.2337, swinging yesterday's pre-Wall Street rebound low at 1.2313 back into scope. AUD-USD was the biggest loser out of the main dollar pairings, with losses of over 0.5%, while AUD-JPY, a forex market proxy on global risk appetite, shed over 0.8%. The yen outperformed even the dollar amid safe haven demand, which saw USD-JPY grind to levels around 109.00 after opening in Tokyo above 109.50.

EUR-USD has extended declines to a 1.2337 intraday low, which has swung yesterday's two-week low at 1.2313 back into scope. Dollar firmness has driven the decline, with a shaky finish across Asian stock markets and a near 1% loss in S&P 500 futures suggesting that the risk-off phase hasn't ended yet, despite yesterday's Wall Street rebound and gains across European bourses today. News that Germany's CDU and SPD have reached a coalition agreement had little impact on the euro. We anticipate that EUR-USD will remain biased to the downside amid a continued playing out of risk-off conditions. Concerns about lofty equity valuations and global indebtedness following a near decade of ultra-accommodative monetary policy, alongside prospects for rekindled inflationary pressures, and concerns about the prudence of the U.S. deficit-financed tax cuts (at least in some narratives), are likely to remain a dominant narrative for a while yet. While this theme persists, we expect the dollar to remain a buy-on-dips trade. Initial EUR-USD resistance is at 1.2430-32.