Economic Conditions

Long-Lasting Headwinds

The US dollar is higher against the major currencies but the Japanese yen and the New Zealand dollar.  The dollar fell to new two-year lows against the yen to JPY103.55 before bouncing in the European morning back to JPY104.40.

Positioning for Life after the UK Referendum Continues

A spate of opinion polls showing a tilt toward Brexit, and the leading UK newspaper urging the Leave vote on the front page, keep the global capital markets on edge.  Equities are lower, though of note ahead of the MSCI decision first thing Wednesday in Asia, Chinese shares eked out a small gain.

Core bond yields are 4-5 bp lower, which pushes the 10-year German bund yield into negative territory for the first time.

Technically Speaking: It's Still the FOMC and UK Referendum

The US dollar traded heavily in the first few days of last week as investors continued to respond to the poor employment report.   However, Yellen's willingness to defer judgment while noting the underlying economic strength, JOLTS and the initial jobless claims, coupled with the ongoing anxiety over the June 23 UK referendum helped the dollar recover in the second half of the week. 

Down, then Up, the Dollar is Ready for the Weekend

The US dollar weakened in the first half of the week as participants continued to react to the shockingly poor jobs report and shift in Fed expectations.  However, it recovered smartly yesterday and is seeing some modest follow through buying today. 

The Dollar Meanders, South Korea Delivers a Surprise Rate Cut

The US dollar is posting modest upticks against most of the European currencies and the Canadian and Australian dollars. However, it has fallen against the yen and taken out the recent low, leaving little between it and the May 3 low near JPY105.50.  The New Zealand dollar though is the strongest of the major currencies; gaining 1.5% following the RBNZ's decision to leave rates on hold, and signal of little urgency to cut again in the near-term. 

Economic Data Overshadowed by the UK Referendum, US Election

The foreign exchange market is quiet.  The euro remains confined to the narrow range seen on Monday between $1.1325 and $1.1395.  We continue to look for higher levels near-term as the drop from May 3 (~$1.1615) to May 30 (just below $1.11) is corrected.  A move above $1.1420 would likely spur more buying. 

Yellen Speaks while the Yen and Sterling get Testy

The Japanese yen is the only major currency not to be gaining against the US dollar.  Emerging market currencies, save the Chinese yuan, are also advancing against the greenback today.  The yen rose 3.5% against the dollar last week, and rising equities and commodities are weighing on the yen.

The dollar rose to almost JPY108 in Asian trading and is consolidating in the European morning.  The JPY108.30 area is the first retracement objective, which is a little above the five-day moving average (~JPY108.05).

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.