Dollar Trying to Stabilize Ahead of the Weekend

<br /> Dollar Trying to Stabilize Ahead of the Weekend – Marc to Market<br />


The US dollar has been stabilizing over the past couple of
 This broad stability of the dollar
is impressive because of the questions of the prospects of US President Trump’s
economic agenda.  Expectations for tax reform and infrastructure spending
have bolstered investor confidence and helped boost equity prices despite what
appears to be stretched valuation.  
The wrangling
over US healthcare is not simply a domestic concern. 
In addition to US households, healthcare is an essential
element of the broader tax reform.  The funds freed up by the projected
cuts in some people being covered and the extent of the insurance
will provide half the funds that will use
to finance tax reform and tax cuts.    Roughly the other half comes
from the border adjustment, which is proving to be as controversial as replacing
the Affordable Care Act (Obamacare).
This is important
because without being able to fund the tax reform, it may require the cooperation of Democrats to pass the
legislation, which will be exceedingly difficult. 
 Also, without
the tax reform, the economic agenda unravels.  The US President and the
Speaker of the House Ryan allowed some changes in the original proposal to
appeal to more of the  Freedom Caucus, but in so doing risk losing some
moderate.  A defeat of the bill before the weekend will deal a potentially
significant blow to the magnitude of the tax reform that will be possible.
  The White House tried to play down the implications and said it would
simply turn to its next priority, tax reform.    File it under bluster.
On the other
hand, if we are right, the Trump Administration recognizes the significance too
and will do whatever it takes to win its first legislative battle. 
 Its (temporary) ban on immigrants is meeting judicial
constraints.   This will ease of creeping doubts.   At the same time,
other developments may push in the same direction.  Here we are thinking
about a likely tick lower in the preliminary eurozone
CPI due next week.  The core rate, which bottomed at 0.6%, may ease from
0.9% back to 0.8%.   It would add support to ideas that it is still
premature to think about an ECB exit.   Also, the participation in the
ECB’s last long-term long (TLTOII) was larger at 233.5 bln euro, which is ore
than twice median guesstimates.  
The US reports
personal consumption expenditure. 
 There is scope for an upside
surprise. Although retail sales were soft, the January figure was revised
higher, which means that PCE can pick it up February or in the revision.
 In either case, it should help lift Q1 GDP estimates toward 1.25%-1.50%.
OPEC’s five-nation monitoring committee meets over the
 OPEC compliance with the output agreement
has been regarded as fairly high.
 Non-OPEC countries’ compliance is about half of OPEC’s.    
 This meeting will not determine if the current agreement is extended.  With global stocks still
above the five-year average, OPEC will
most likely feel compelled to extend the cut for another six months.
 However, many suspect that the new agreement will be a little softer or
more flexible than the current one.   
In Japan, the
BOJ appears quite content with its current stance. 
  The yen trade continues to appear to be more a
function of external factors, like the US 10-year yield and equities than
domestic developments in Japan.  That could change.  Japanese
institutions were buyers of foreign bonds last week, snapping a three-week
sell-off.  In fact, since the middle
of January, it was only the second week of next purchases.     
The market’s
reaction function may also change it the scandal over a contribution to and
seemingly favorable government treatment of a,
particularly nationalistic school. 
 There are accusations against the
Prime Minister and his wife.    The support for the Abe Cabinet has
fallen as a result, but few here seem to think it will have the last impact.  
There is not an obvious successor to Abe,
who recently was given the authority to remain head of the LDP (which also
means Prime Minister) for a third term.  
After posting
an outside up day on Tuesday, the euro has drifted lower Wednesday and
 It is trading softer Asia.  The
downtrend line on the hourly charts comes
in around $1.0775 in early Europe. We
still think a close below $1.0740 lend credence to ideas that a near-term high
is in place.  
The dollar has
fallen in eight consecutive sessions against the yen coming into today.  
It is trading with a firmer bias in Tokyo.
 The dollar had not closed above its
five-day moving average against the yen since
the day before the Fed hiked.  It is found today near JPY111.55.
 Still, it takes a move back above JPY112.00 to begin healing the
technical damage.  

Strong UK
retail sales helped extend sterling’s recovery. 
 It is up in six of the past seven sessions coming
into today.  It a bit heavier in Asia and has been pushed back below
$1.25.    It too had not closed
below its five-day average since the day before the Fed raised rates.  It is found just bel02 $1.2320 today.  


Dollar Trying to Stabilize Ahead of the Weekend
Dollar Trying to Stabilize Ahead of the Weekend

Reviewed by Marc Chandler

March 23, 2017

Rating: 5

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