Was Yesterday's U.S. Reversal a Fluke?

The foreign exchange market is unusually calm.  The US dollar is little changed against currencies.  While the selling pressure that took sterling below $1.39 and the euro below $1.10 has subsided, neither has been able sustain upticks.  The euro rose to $1.1040 before sellers re-emerged. Sterling was capped near $1.3965.

The dollar had slipped to almost JPY111.00 yesterday, coming within five ticks of the February 11 low, before rebounding with the recovery in US stocks and advance in US yields.  The greenback's gain faltered near JPY112.65.

Dollar Strength from its Peers' Event-Driven Weakness

The US dollar has begun the week with a strong advance against sterling and the euro. Sterling's drop, the most in several years, is not a function of macroeconomic policy.  It is a function of Brexit and its endorsement by London Mayor Johnson.  Recent polls and identified Johnson, who term as Mayor ends in early May, as the second most influential person on the issue after the Prime Minister himself.

Understanding Currency Correlations

Those looking to trade in any of the financial markets will obviously need to have a firm understanding of the basics involved in their chosen asset class.  However, what is likely less obvious is the fact that traders in one asset class should at least spend some time monitoring what is happening to price changes in peripheral markets. 

Euro and Yen Rise Even Though Rates are Negative

The conundrum that everyone is wrestling with is the euro and yen's strength given their negative interest rates and prospect for even lower interest rates.  The divergence of monetary policy, even if the Fed is on hold for the rest of this year and next, should be dollar-positive. 

Euro Gains despite QE Programs

When we look at many of the financial media headlines over the last year, we have seen a good deal of attention focusing on the declining valuation in the Euro.  However, when we take a closer at specific valuations in the Euro, we can see that this is not necessarily the case. 

Investors Wait for the Next Renminbi Shoe to Drop

In the first quarter of 2014, the People’s Bank of China (PBoC) finally succeeded in breaking persistent renminbi (RMB) appreciation expectations. Unfortunately, the subsequent RMB depreciation coincided with the weakening of China’s economic fundamentals. As a result, instead of creating two-way fluctuations in the RMB exchange rate, expectations of RMB depreciation started to creep into the market. Capital outflows driven by expectations of RMB depreciation started to rise.

The Dollar on its Heals, at Least for a Week

The US dollar traded higher before the weekend with the help a fairly robust jobs report.  Although the jobs growth itself was somewhat disappointing, the details were constructive:  More people working a longer workweek and earning more.  The participation rate rose, and the unemployment rate (U-3) fell.  The Atlanta Fed GDPNow tracker increased to 2.2% in Q1 16 from 1.2% at the start of the week.

The Pound Brushes off BOE Comments

Sterling has neared the 50% retracement of the 11.5-cent decline since mid-December.  It is near $1.4660.  After easing ahead of the BOE announcement, sterling sold to $1.4530 on the initial headlines that showed the BOE was cutting its growth, inflation, and wage forecasts.  However, the short-sterling futures had already largely discounted the rates being low for longer, and UK debt instruments also sold off, and after the initial flurry, sterling stabilized and recovered nearly fully.

When a Safe Haven is not a Safe Haven

The yen is the strongest currency today.  Many are still referring to it as a safe haven.  However, this strikes us as a misuse of the concept.  Investors are not flocking to the yen to find quiet place to ride out the storm.  Rather the yen's strength is a reflection of the turmoil.