Category: Economic Conditions

Is the Dollar Correcting for the May Advance?

The US dollar reversed higher on May 3 and trended higher.  It peaked on May 30, but it was not clear until the poor US jobs report sent the greenback reeling on June 3.  The fact that May 3-May 30 move is over is the most important technical consideration for the dollar’s outlook.

It is interesting to recall that the dollar had bottomed a fortnight before the FOMC minutes and Fed comments had encouraged the market to re-price a summer hike. The dollar now has peaked prior to investors pushing out the rate hike once again.

Is the Slowing Asian Economy Secular in Nature?

A gloomy outlook is enveloping the world’s economies. There are concerns too that countries are failing to sufficiently focus on long term policy responses to reverse the decline in global growth. Some argue that the global growth slowdown may be permanent, highlighting the danger of a period of chronically low growth, or what economists term “secular stagnation.”

What Happened Before the Jobs Data and More

Activity in the global capital markets is subdued. Yesterday’s moves are being consolidated, and the dollar has been confined to narrow ranges.  The euro is in a quarter cent range, while sterling is in a 50 cent range and the dollar has been confined to about two-thirds of a yen. 

ADP and ECB Preview

The US dollar remains under pressure.  It is off for the third day against the yen and slipped below JPY109 for the first time in a little more than two weeks.  The Nikkei struggled to cope with the foreign exchange developments, lost 2.3%, the most in a month, after gapping lower.  At JPY108.50, the dollar would have given back 50% of its rally off the May 3 low near JPY105.50.   Below there, the JPY107.80 is the 61.8% retracement. 

Does Asia’s Slowdown Contain Undue Pessimism?

A gloomy outlook is enveloping the world’s economies. There are concerns that countries are failing to sufficiently focus on long-term policy responses to reverse the decline in global growth. Some are even arguing that the global growth slowdown may be permanent. However, for developing Asia, this downbeat view is clearly overstated.

Place Your Bets on a Rate Hike and the UK Referendum

The US dollar is broadly mixed.  The main narrative of increased prospects for a Fed hike in June or July has been pushed off center stage as the market reacts to local developments as investors await from US economic data.  Ostensibly, the data will determine whether the Fed raises rates in June or July.

On the other hand, despite the Fed’s data dependency, we argue that the determining factor is the Fed’s risk assessment.  In particular, we accept at face value the official recognition of the risks posed by the UK referendum.

Is it the Data, or the Response?

The US dollar bottomed against nearly all the major currencies on May 3.  The hawkish April FOMC minutes that began swaying opinion about the prospects for a summer rate hike were not published until two weeks later, and the confirmation by NY Fed President Dudley was not until May 19.

Technical Indicators Signal Dollar Strength

The US dollar was mostly firmer over the past week.  There were two exceptions among the major currencies:  Sterling and the Canadian dollar.

Many linked sterling’s outperformance (+0.8%) to a growing sense that the UK will vote to remain in the EU, despite angst reflected in the elevated cost of insurance (one-month options).  The Canadian dollar (+0.7%) was helped by oil’s flirtation with $50 a barrel and a central bank that was perhaps less dovish than some expected. 

G7 Over, Yellen on Deck

The US dollar is winding down the week on a firm note, but still in a consolidative mode.  The euro, yen, and Australian dollar are well within yesterday’s ranges while sterling and the Canadian dollar pushing through yesterday’s lows.

Asian shares were mostly higher, though Chinese markets closed with slight losses.  The MSCI Asia-Pacific Index rose (~0.7%) for a third session and secured a 2% gain for the week.  European bourses are seeing some profit taking ahead of the weekend, which trims their weekly gain.

Oil Price Recovery and Brexit Insurance

The US dollar is trading with a softer bias today after the momentum stalled yesterday.  The pullback is shallow but could be extended a bit more in the North American session.  The US reports weekly jobless claims, durable goods orders and pending home sales.