The reversal of the US dollar’s gains half way through Draghi’s press conference has undermined the near-term technical tone. The risk is on the downside, at least in the first part of the week, ahead of the FOMC meeting.
The Canadian dollar’s advance continues. Neither the widening of interest rate differentials in the US favor nor a poor employment report has managed to buckle the Loonie. Oil and the general risk-on mood trump the other concerns.
In addition, investors are concluding that fiscal stimulus will reduce the possibility of additional monetary stimulus. The implied yield on the June BA futures is now the highest since last June.
The Canadian dollar appears vulnerable. It remains firm while the US two-year premium over Canada has risen sharply. Like others, we do not expect the Bank of Canada to cut rates today and are looking past it.
This Great Graphic was composed on Bloomberg. It shows the 2-year spread (white line) and the US dollar against the Canadian dollar (yellow line). We use two different scales, but the point is not so much how precise they have tracked each other. With two different scales that is misleading.
We argue that the dollar is in its third significant rally since the end of Bretton Woods in 1971. The Reagan dollar rally was driven by the policy mix of tight monetary policy and loose fiscal policy. The G7 effort to stop the dollar’s appreciation at the Plaza Hotel in September 1985 marked the end of the Reagan dollar rally.
Over the last decade, we have seen several instances where most market investors have been caught off-guard and surprised by new developments. Most notably, the stock market events of 2008-2009 were some of the most significant in recent memory — and this has led many investors to feel skittish when looking to establish new investment positions.
The US dollar fell against all of the major and most of the emerging market currencies last week. Risk appetites have been rekindled, and the yen has gone from the best performer in recent weeks to the worst over the past week.
Major equity markets advanced for the third week. The MSCI Emerging Market equity index has rallied more than 15% since the January 21 low, and nearly 12% since the February 11 low. The index finished the week at its best level since January 4.
Over the next fortnight the major central banks, including the ECB, BOJ, Fed and BOE will hold policy-making meetings. Of the four, expectations are the highest for the ECB to ease policy.
Charitable organisations by definition aim to do good with the money they receive and spend. However, what about the investments they make? What if these investments don’t appear to match the aims that the organisation promotes? For example, a charity that promotes conservation would raise eyebrows if they invested and received returns from an oil company. Some charities have come under particular scrutiny for this mismatch, while others have faced calls to divest their money from uncomfortable concerns. Others use ethical investing as a guide.
During a period in which the zero bound no longer is the floor of interest rates, and many central banks continue to ease policy, we have been watching gold a bit closer.
In early January, we noted that the technical pattern warned of breakout. Our first objective was $1110-$1135.
In early February, we updated our view with gold trading near $1150. The charts still looked constructive; we suggested a new target near $1200.
The position adjustment among speculators in the currency futures market was minor in the reporting week that ended February 23. We regarded only one gross adjustment as significant (more than 10k contracts). The Mexican officials sprung a bear trap and forced speculators to cover. There were 15.8k gross short peso in speculative hands bought back, leaving 83k contracts still short.
