AWARDS
After a brief lull toward the end of last week, following the initial euphoria surrounding the mid-week ceasefire agreement, we've returned to uncertainty following the collapse of weekend talks and the US attempt to impose some sort of blockade on the Strait of Hormuz. While prices at the opening were predictably positive, there was once again no reaction on the currency front after the initial recalculation. Either the market is simply tired of chasing its own tail, or the belief persists that the damage caused by Trump is also affecting the dollar. I still see little chance of predicting a final outcome, so I'm trying to be patient.
I had a feeling, even before last week's hopeful sentiment, that the dollar wasn't performing as well as it should, and overnight price action has reinforced this impression, so I'm maintaining the short dollar positions I opened last week, despite the "worsening" news. Specifically, I'm happy to remain long on the euro (which broke levels last week, with a decent close on Friday until the weekend) and short on USD/CAD (technically, I was feeling tired; there must be further medium-term benefits from rising commodity prices, despite the structural shift in the relationship with the United States, and I expect local operators to supply dollars at these levels, given the recent underperformance) in the G10. I sold EUR/HUF on the election results, contrary to the geopolitical context, but a major regime change at the local level should support the currency, all else being equal (the team had a good view on this, and we initiated short positions via options).
After last week's wave of euro buying on Wednesday, the market quickly stabilized ahead of the weekend, but overall the currency performed fairly well, though not exceptionally so. The close above the moving averages is encouraging, and the declines so far have been brief and mild. Obviously, if the situation were to worsen in the Middle East, it would be difficult to remain long at these levels, given that Europe is obviously highly dependent on energy prices, but the price action is somewhat encouraging. In the short term, a return below the lows (1.1640 Wednesday evening, 1.1660 at the Wellington open) would reduce liquidity.
