Category: Economic Conditions

Technically Speaking…Here is Your Indicator Update

Although there is no convincing technical evidence that dollar’s retreat in Q1 is over, we suspect it is nearly complete.  We will be especially sensitive to reversal patterns, divergences with technical indicators, and other signs that the move is exhausted.

The fundamental economic driver of our medium term constructive outlook for the US dollar, the divergence of monetary policy between the major central banks, relative health of the financial sector, and absorption of capacity, remains intact.

U.S. Data Could Help Set the Week’s Tone

The US dollar is mostly lower as the North American session is set to begin.  The holiday in many centers, especially in Europe, has limited activity, and a few orders seemed to drive prices, which remain within the recent ranges.

Yellen’s Speech and the Tankan Survey Highlight This Week’s Events

Four events will shape market psychology in the week ahead.  They are Yellen’s speech to the NY Economic Club, US jobs data, Eurozone March CPI and PMI, and Japan’s Tankan Survey. 

The broad backdrop is characterized by the rebuilding of risk appetites since the middle of February, though the MSCI emerging market equity index put in its low on January 20, as did the CRB Index.  The price of oil appeared to bottom then as well, but it retested the lows in mid-February and made a marginal new low. 

A Light Data Day Still Contains some Nuggets

The holiday shutters most markets today.  Several Asian markets were open, and equities were narrowly mixed, with Japan and China posting small gains.  Most of the other local markets, including Australia, Korea and Taiwan slipped.

The US dollar is trading with a firmer bias, but mostly, as one would expect, within yesterday’s ranges.    Three observations are worth sharing.

Fed Officials Give the Dollar a Boost

The US dollar is firm as the losses suffered in the wake of the FOMC meeting are retraced.  Over the last few days, no less than five Federal Reserve officials have come out endorsing a resumption of the normalization cycle.  In addition, no fewer than three regional Fed manufacturing surveys have shown greater strength than expected, with gains in forward-looking new orders. 

Markets Stabilize after the Brussels Attacks

A series of attacks at Brussels airport and metro casts a pall over the market.  The attacks come as Europe prepares what for many will be a long holiday weekend.  Gold, the dollar and yen seem to have been the beneficiaries.   Bonds are generally firmer and equities lower.  However, in late morning activity in London, the markets began stabilizing.

Ian Duncan Smith is Out, Pressuring Cameron and the Pound

The US dollar is beginning the week mostly firmer against the major and emerging market currencies.  The Japanese yen, where local markets were closed for the spring equinox is up slightly, and the Australian dollar turned higher in the European session. 

However, sterling has remained under pressure from the start.  Ian Duncan Smith’s resignation ostensibly over cuts in disability spending is seen as another front in the Brexit debate that has split the cabinet and the Tory Party. 

Thank Goodness for the Second Half of the First Quarter

The year started poorly, to say the least. Equity markets plunged from the get-go.  The Nikkei, DAX and S&P 500 gapped lower on the first trading day of the year.  Emerging markets and commodities were smashed. 

Many economists blamed the Federal Reserve for hiking rates in mid-December.  Pundits warned that the seven-year bull market and weak economic recovery in the US was ending.  A recession loomed and worse because monetary policy had lost its effectiveness and fiscal policy was political neutered. 

Additional Dollar Weakness Would Not Surprise

The US dollar had a difficult week.  The price action after the ECB meeting had undermined the technical tone, and the dollar took another leg down after the FOMC moved closer to the market expectation by reducing the number of rate hikes the median official thinks would be appropriate this year from four to two.