Category: International Forex

Is the Dollar Living on Borrowed Time, or Not?

Yogi Berra, one of the keenest observers of the human condition, once remarked, “It is tough to make predictions, especially about the future.”  And, so it is.

Between the middle of last December and the middle of March, the Dollar Index rallied 14.7%. It then fell 6.2%.  A 50% retracement would bring it to 94.00, which had generally provided support in the second half of February.  It was from that that the Dollar Index staged a new leg up that carried it to 100.40 over the next few weeks.

Evidence that the Dollar’s Bull Case May Be Turning Over

The US dollar finished the week on seemingly fragile footing. The question investors are asking is if the steady drum beat of disappointing US economic data turns the dollar’s bull case on its head.  The Europe and Japanese side of the divergence have not changed, but the US side has. 

An Upbeat ECB Survey, the Dollar Consolidates, and the Japanese are Buying a lot of Treasuries

The US dollar has stabilized from a sell-off that took it to JPY118.50 and lifted the euro to almost $1.0750.  Disappointing US data has squeezed out some late longs and unwound the rise the implied yields of the December Fed funds and Eurodollar futures contracts.  The gap between the market pricing of a December lift-off contrasts with the surveys that show a large majority in the June-Sept period.

The Yuan as a Reserve Currency Partly Hinge on China Adopting IMF Best Practices

China reported that its currency reserves fell for the third consecutive quarter in the three months ending on March 31.  The dollar value of reserves fell, $113 bln to $3.73 trillion.  Over the three quarter period, China’s reserve holdings have fallen by roughly $263 bln.  

The Dollar Showed Somewhat Surprising Strength Last Week

The US dollar turned in an unexpectedly strong performance last week. It appreciated against all the major currencies, but the Australian dollar, and most of the emerging market currencies. Fundamental considerations after the disappointing March US employment report coupled with technical indicators favored a softer dollar. Instead, the dollar had one of its best weeks of the year.

Liquidity Returns to the Markets with Surprising Gains by the U.S. Dollar

With full liquidity returning to the markets, the US dollar has built on the recovery seen in the North American afternoon yesterday.  The greenback’s gains against the euro are particularly surprising, catching many off guard.  The euro has slumped two cents from yesterday’s highs, completely giving back the gains scored in the wake of the disappointing US jobs data before the weekend. 

The Renminbi-Dollar Peg and Reasons for it to Go Away

The Chinese economy is simply too big to remain tied to the once useful monetary anchor of the renminbi–US dollar peg. It is time to let it go.

The Chinese renminbi depreciated 2.5 percent against the US dollar in 2014. It was the largest annual fall since 2005, when Beijing timidly started loosening its tight dollar peg. Recently, the Chinese currency has repeatedly tested the weak side of its daily trading band, despite attempts by the People’s Bank of China (PBoC) to signal a steadier bilateral renminbi-US dollar rate via its daily fixing.

Last Week’s Dollar Slide Demonstrated a Temporary Lack of Conviction

The US dollar fell against most of the major and emerging market currencies in the past week.  The price action has been choppy, and many participants lack near-term conviction.  Month, quarter, and for many, fiscal-year end considerations inject additional uncertainty.  Next week can be more of the same.  The week will be cut short by holidays that shut most European market in the second half of the week, and the North American market is unlikely to have full participation when the March employment data are reported on Good Friday, April 3.

Call it a (Slight) Comeback for the Dollar

The greenback staged a reversal yesterday, and there has been follow through buying in Europe after a quiet Asian session.  It seems that after last week’s dramatic reaction to the FOMC, the market is probing for the new range, and month, quarter and fiscal year end position adjustments have become complications.

A Light News Day Inspires Little Forex Movement

The US dollar continues to consolidate in uninspiring activity.  There is little technical indication that the downside correction is over.  At the same time, US interest rates remain softer, and there is no expectation that today’s durable goods orders report will give the dollar bulls much help.  Large option expiries today and tomorrow may also serve to contain the price action.  Between today and tomorrow, nearly 3.4 bln euros of $1.09 strikes and $2 bln of JPY120 strikes expire.