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The US
dollar suffered broadly last week. It
fell against the all major currencies and most of the emerging market
currencies. There were two main drivers.
The first was the heightened geopolitical risks. The US
launched a missile strike against Syria’s government forces in retaliation for
its use of chemical weapons.
dollar suffered broadly last week. It
fell against the all major currencies and most of the emerging market
currencies. There were two main drivers.
The first was the heightened geopolitical risks. The US
launched a missile strike against Syria’s government forces in retaliation for
its use of chemical weapons.
The US also dropped the largest non-nuclear bomb on IS bunkers in
Afghanistan. At
the same time, it sent an aircraft
carrier group toward North Korea.
While the fear of that the Trump Administration was going to be
isolationist has subsided, there is a concern about unilateralism and the
seeming lack of an overarching strategy.
Afghanistan. At
the same time, it sent an aircraft
carrier group toward North Korea.
While the fear of that the Trump Administration was going to be
isolationist has subsided, there is a concern about unilateralism and the
seeming lack of an overarching strategy.
Away from these military developments, the tightening of the
French presidential election is contributing to the heightened anxiety. The latest polls
show that when the margin of error is taken into account, any of the top four
candidates could theoretically make it the second round. This led to a widening of the French premium
over Germany.
French presidential election is contributing to the heightened anxiety. The latest polls
show that when the margin of error is taken into account, any of the top four
candidates could theoretically make it the second round. This led to a widening of the French premium
over Germany.
The second driver was the
comments by President Trump complaining about the dollar’s strength. Both the timing
and substance of his remarks caught the
market off-guard. According to various measures,
the US dollar has declined through the first quarter. A few weeks ago,
Treasury Secretary Mnuchin signed off on a G20 statement that reiterated the
longstanding position the foreign
exchange market should not be weaponized.
That is to say that countries ought not to
seek to boost competitiveness in the foreign exchange market, but that is precisely what Trump did. Despite the
strength of US exports, Trump complained that the “strong dollar” was
hampering the competitiveness of US firms.
comments by President Trump complaining about the dollar’s strength. Both the timing
and substance of his remarks caught the
market off-guard. According to various measures,
the US dollar has declined through the first quarter. A few weeks ago,
Treasury Secretary Mnuchin signed off on a G20 statement that reiterated the
longstanding position the foreign
exchange market should not be weaponized.
That is to say that countries ought not to
seek to boost competitiveness in the foreign exchange market, but that is precisely what Trump did. Despite the
strength of US exports, Trump complained that the “strong dollar” was
hampering the competitiveness of US firms.
The Dollar Index snapped a two-week advance and shed about 0.65%
last week. Further
losses seem likely in the coming days, as the technical condition deteriorated.
Initial support is seen in the
99.80-100.00 area, and a break, which seems probable, given the position of the
technical indicators, would target the 99.00 area, where the recent
leg up began and housed the 200-day
moving average. The five-day moving average is looks poised to fall back
below the 20-day moving average next week. A move above the downtrend
line connecting the January and March highs, and approached last week would
lift the tone. It is found near 101.40 at the start of the new week,
falling about two ticks a day.
last week. Further
losses seem likely in the coming days, as the technical condition deteriorated.
Initial support is seen in the
99.80-100.00 area, and a break, which seems probable, given the position of the
technical indicators, would target the 99.00 area, where the recent
leg up began and housed the 200-day
moving average. The five-day moving average is looks poised to fall back
below the 20-day moving average next week. A move above the downtrend
line connecting the January and March highs, and approached last week would
lift the tone. It is found near 101.40 at the start of the new week,
falling about two ticks a day.
The euro was among the poorest performers among the major
currencies last week, gaining 0.25%. However, there was little enthusiasm
to sell the euro below $1.06, where the trend line drawn off the January and March lows comes it. It is not traded above
$1.07 yet in April. The Slow Stochastics have turned higher, and the MACDs also look poised to turn
in the coming days. The $1.0680-$1.0700 offer initial resistance, and to be
sure, cautiousness may prevail ahead of the French presidential election.
Above there, potential extends
toward $1.0740, and possibly $1.0780. The latter may be a bit of a stretch, but
reachable if the deadlocked French polls shift back to Macron or if US yields
fall further after the soft US CPI and headline retail sales before the
weekend.
currencies last week, gaining 0.25%. However, there was little enthusiasm
to sell the euro below $1.06, where the trend line drawn off the January and March lows comes it. It is not traded above
$1.07 yet in April. The Slow Stochastics have turned higher, and the MACDs also look poised to turn
in the coming days. The $1.0680-$1.0700 offer initial resistance, and to be
sure, cautiousness may prevail ahead of the French presidential election.
Above there, potential extends
toward $1.0740, and possibly $1.0780. The latter may be a bit of a stretch, but
reachable if the deadlocked French polls shift back to Macron or if US yields
fall further after the soft US CPI and headline retail sales before the
weekend.
The Japanese yen was the strongest currency in the world last
week, gaining nearly 2.3% against the dollar. It
was yen’s biggest weekly gain since last July. We argue it is an
exaggeration to think of this as a safe haven
characteristic of the yen. Even though foreign investors were not buyers
of roughly JPY1 trillion of stocks and bonds in the week ending April 7, it was less than the previous week. And
Japanese investors sold more than twice as many foreign bonds (short-covering).
In the 14 weeks so far this year (through April 7), Japanese investors
bought foreign bonds in five weeks.
week, gaining nearly 2.3% against the dollar. It
was yen’s biggest weekly gain since last July. We argue it is an
exaggeration to think of this as a safe haven
characteristic of the yen. Even though foreign investors were not buyers
of roughly JPY1 trillion of stocks and bonds in the week ending April 7, it was less than the previous week. And
Japanese investors sold more than twice as many foreign bonds (short-covering).
In the 14 weeks so far this year (through April 7), Japanese investors
bought foreign bonds in five weeks.
We suggest that the real safe haven
was US Treasuries, where despite the holiday-shortened week, the 10-year
yield tumbled 14 bp, driving yields almost 2.21%. It is the lowest yield
in nearly five months. The drop in US yields, we suspect, spurred buying
back of previously sold yen and discourages fresh portfolio flows out of Japan. Given Japan’s growing current account surplus, anything that detracts
from capital outflows spurs yen
appreciation.
was US Treasuries, where despite the holiday-shortened week, the 10-year
yield tumbled 14 bp, driving yields almost 2.21%. It is the lowest yield
in nearly five months. The drop in US yields, we suspect, spurred buying
back of previously sold yen and discourages fresh portfolio flows out of Japan. Given Japan’s growing current account surplus, anything that detracts
from capital outflows spurs yen
appreciation.
The dollar finished below the 200-day moving average (~JPY108.80)
against the yen for the first time since the US election, which also
corresponds to the lower Bollinger Band. The
61.8% retracement of the dollar’s rally since the election is found close to JPY107.85. Previous
support at JPY110 now serves as resistance.
against the yen for the first time since the US election, which also
corresponds to the lower Bollinger Band. The
61.8% retracement of the dollar’s rally since the election is found close to JPY107.85. Previous
support at JPY110 now serves as resistance.
The British pound was the second strongest currency among the
majors. It
rose about 1.25% against the greenback,
and the five-day moving average moved above the 20-day. The technical
indicators are not generating very clear signals, but we see initial potential
toward $1.2600-$1.2620. Above there lies the year’s high set in early
February a little above $1.2700. We suspect sterling may begin the week
on firm footing, but anticipate a softer close, The BRC data warns of weakness
in retail sales, which will be reported
at the end of the week. It is likely to be the fourth decline in the past
five months.
majors. It
rose about 1.25% against the greenback,
and the five-day moving average moved above the 20-day. The technical
indicators are not generating very clear signals, but we see initial potential
toward $1.2600-$1.2620. Above there lies the year’s high set in early
February a little above $1.2700. We suspect sterling may begin the week
on firm footing, but anticipate a softer close, The BRC data warns of weakness
in retail sales, which will be reported
at the end of the week. It is likely to be the fourth decline in the past
five months.
The US dollar was stymied by CAD1.3340 in
the last three sessions. It
corresponds to the 50% retracement of the decline from the April 4 high near CAD1.3455. In the last seven
sessions, the US dollar has gained in only one. The 61.8% retracement is near
CAD1.3365. The greenback held the 200-day moving average (~CAD1.3225) at the
lows. The US two-year premium over Canada has narrowed by almost ten basis points since March 28, but it is
holding a trend line drawn from last October and this past February’s lows.
Our correlation work also shows that the Canadian dollar has become more
sensitive to the price of oil.
the last three sessions. It
corresponds to the 50% retracement of the decline from the April 4 high near CAD1.3455. In the last seven
sessions, the US dollar has gained in only one. The 61.8% retracement is near
CAD1.3365. The greenback held the 200-day moving average (~CAD1.3225) at the
lows. The US two-year premium over Canada has narrowed by almost ten basis points since March 28, but it is
holding a trend line drawn from last October and this past February’s lows.
Our correlation work also shows that the Canadian dollar has become more
sensitive to the price of oil.
For the most part, since the middle of January, the Australian
dollar has traded in a range between $0.7500 and $0.7750. It had looked as if the bottom end
of the range was going to give last week. Although it never closed below
$0.7500, it did spend some time below there. The stronger than expected
jobs data, the heavier tone to the US dollar in general, the decline in US
rates, and perhaps also the strong Chinese trade figures, helped the Aussie
return toward the middle of its range. The $0.7615 to $0.7650 area is
likely to offer an important hurdle for the bulls.
dollar has traded in a range between $0.7500 and $0.7750. It had looked as if the bottom end
of the range was going to give last week. Although it never closed below
$0.7500, it did spend some time below there. The stronger than expected
jobs data, the heavier tone to the US dollar in general, the decline in US
rates, and perhaps also the strong Chinese trade figures, helped the Aussie
return toward the middle of its range. The $0.7615 to $0.7650 area is
likely to offer an important hurdle for the bulls.
Oil closed higher for the third consecutive week, falling in only
one session each week. The
momentum may be slowing as the May light sweet crude oil futures contract
approaches $54 a barrel. Above there lies the high set earlier this year on the continuation contract was near $55.25. Technical
indicators appear to be getting toppish,
warning that participants should be on the lookout for a reversal pattern to
signal a corrective phase. The five-day moving average has been offering
support in the run-up, and it is found near $53.
one session each week. The
momentum may be slowing as the May light sweet crude oil futures contract
approaches $54 a barrel. Above there lies the high set earlier this year on the continuation contract was near $55.25. Technical
indicators appear to be getting toppish,
warning that participants should be on the lookout for a reversal pattern to
signal a corrective phase. The five-day moving average has been offering
support in the run-up, and it is found near $53.
Returning to US Treasuries, we note that the decline in yields
since the FOMC hiked rates last month has been chiefly a decline in real yields
rather than in inflation expectations. The
nominal yield has fallen more than 40 bp, while the 10-year breakeven eased
bout 15 bp. There seems to be three hypothesis. The first is that
the decline in real rates is a function of safe
haven demand even though the US is at the center of the geopolitical
tensions. The second is that investors’ faith in Trump to deliver on his
economic promises has been shaken.
Third, the divergence is exaggerated by the liquidity differences, and
more a statistical quirk than a window into market psychology.
since the FOMC hiked rates last month has been chiefly a decline in real yields
rather than in inflation expectations. The
nominal yield has fallen more than 40 bp, while the 10-year breakeven eased
bout 15 bp. There seems to be three hypothesis. The first is that
the decline in real rates is a function of safe
haven demand even though the US is at the center of the geopolitical
tensions. The second is that investors’ faith in Trump to deliver on his
economic promises has been shaken.
Third, the divergence is exaggerated by the liquidity differences, and
more a statistical quirk than a window into market psychology.
The June 10-year note futures closed at the 38.2% retracement
objective (126-02) of the sell-off since the US election last November. The 50%
retracement is 127-00. The Slow Stochastics may be showing a bearish
divergence insofar as it has not confirmed the new highs, though the RSI and MACDs allow room for additional near-term
gains. The contract has fallen in one session in each of the past
two weeks. It has rallied for six consecutive weeks, the longest since
last June-July. We will be watching for a reversal signal.
objective (126-02) of the sell-off since the US election last November. The 50%
retracement is 127-00. The Slow Stochastics may be showing a bearish
divergence insofar as it has not confirmed the new highs, though the RSI and MACDs allow room for additional near-term
gains. The contract has fallen in one session in each of the past
two weeks. It has rallied for six consecutive weeks, the longest since
last June-July. We will be watching for a reversal signal.
The S&P 500 finished the holiday-shortened week with a
three-day losing streak. Technical
indicators warn that additional losses are likely. Initial support is
seen in the 2322-2327 range. However, if investors are reconsidering the
monetary and fiscal policy mix, then the rally since the election may be
subject to retracement. The 38.2% retracement is 2280, and the 50%
retracement is near 2242. The trend line connecting the March 1
record high, the mid-March high, and the April 5 high is found by 2373 at the
start of the week, and sloping a little less than a point a day.
three-day losing streak. Technical
indicators warn that additional losses are likely. Initial support is
seen in the 2322-2327 range. However, if investors are reconsidering the
monetary and fiscal policy mix, then the rally since the election may be
subject to retracement. The 38.2% retracement is 2280, and the 50%
retracement is near 2242. The trend line connecting the March 1
record high, the mid-March high, and the April 5 high is found by 2373 at the
start of the week, and sloping a little less than a point a day.
Dollar Snaps Two-Week Advance, While Japanese Investors Resume Repatriating Funds
Reviewed by Marc Chandler
on
April 15, 2017
Rating: