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US Dollar Selling Persists, EUR/USD Nearing 1.20, GBP/JPY to Outperform

US Dollar Selling Persists, EUR/USD Nearing 1.20, GBP/JPY to Outperform

Justin McQueen, Analyst

US Dollar Analysis & News

  • EUR/USD Approaching 1.2000
  • Watch Out for Possible Month-End USD Selling into London Fix
  • GBP/JPY Tends to Outperforms on Last Trading Day After Strong Monthly SPX Gains
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The USD has begun the week, much how it had finished last week, on the backfoot as month-end flows dictates G10 FX. The notable beneficiary has been the Euro which is looking to make a retest of the 1.20 handle. However, while there may be rising concerns of ECB verbal intervention again as EUR/USD nears 1.20, there is a sense that this time it may be different. The key reason being that the Euro TWI is not at multi-year highs as it was in the Summer, meaning that the FX passthrough into a softer inflation outlook is lower.

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EUR/USDvs EUR TWI

US Dollar Selling Persists, EUR/USD Nearing 1.20, GBP/JPY to Outperform

Source: Refinitiv

Watch Out for Possible USD Selling into London Fix

This month has seen a stellar rise in equity markets following a Biden victory and recent vaccine optimism with the S&P 500 posting its second-best monthly gain this year (rising 11%). In turn, the consensus is for above-average month-end USD selling into the London 4pm fix. As a reminder, back in April after the S&P 500 saw 12% monthly rise, the USD had come under heavy selling in the run-up (between 1500-1600) to the month-end London fix.

US Dollar Selling Persists, EUR/USD Nearing 1.20, GBP/JPY to Outperform

Source: Refinitiv

Another observation is that whenever the S&P 500 has had a monthly gain over 3%, GBP/JPY has tended to perform well into the London fix. That said, while markets remain on Brexit headline watch, I don’t rule out another strong performer into the fix.

US Dollar Selling Persists, EUR/USD Nearing 1.20, GBP/JPY to Outperform

Source: Refinitiv

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