Tag Archives: FX Trends

The market's focus has shifted to the two-day FOMC meeting that begins today.  The Federal Reserve should be pleased with recent developments.  Labor market slack continues to be absorbed.  Core inflation measures continue to edge higher.   Market-based measures of inflation expectations have risen, and the 10-year breakeven is a little above levels that prevailed before the December FOMC meeting.  The volatility in the capital markets that characterized the first six weeks of the year...

The US dollar is steady to firmer against most of the major and emerging market currencies.  Equity markets are heavier, and oil continues to surrender some of its recent gains.  Profit-taking is weighing on eurozone bonds and JGBs while US Treasuries and UK gilts are firmer.   The main exception to the firmer dollar is the Japanese yen.  The Bank of Japan left policy unchanged, as widely anticipated.  Its assessment was seen as somewhat less dovish than many expected.  While...

The price of oil is seeing its biggest decline today since February 23.   The ostensible reason is that Iran once again reiterated it would only consider capping its output after it reached four million barrels a day, its pre-sanction output.  Last month, the Saudis and Russia (joined by Venezuela and Qatar) indicated they were prepared to freeze output on the condition that the Iranians (and others would join).  It was clear that the Iranians could not and would not join.  Iran had just...

The introduction of negative interest rates in Japan and the subsequent chance for yields has seen domestic investors move further out on the curve.  They have also stepped up their purchases of foreign bonds.  In three weeks (through March 4) since the negative deposit rate went into effect, Japanese investors bought JPY4.4 trillion of foreign bonds.  This is the second most since at least 2001 (when Bloomberg's time series began), trailing slightly behind the August 2010 flurry. In the...

The US dollar is firmer but largely confined to the ranges seen before the weekend against most of the major currencies.  The yen is also firmer as dollar sellers reemerged near JPY114.00.    The dollar is gaining against most emerging market currencies, though Asian currencies, notably the Korean Won, are firmer.  Although emerging market currencies and commodities are heavier, global equities are continuing their advance since bottoming February 11-12.  Even disappointing industrial...

EM enjoyed an extended rally last week, and it should carry over to the early part of the week. The Wednesday FOMC meeting poses a risk to EM, especially if markets continue to price in a more hawkish Fed. The dot plots and press conference will be very important. BOE and the Norges Bank also meet this week, with the latter expected to deliver a 25 bp rate cut to 0.5%. Firm commodity prices are helping sentiment, with WTI making new highs for 2016 and approaching the $40 area. While weaker...

Fixed exchange rates limit the degrees of freedom for policymakers.  The breakdown of Bretton Woods in 1971 removed this constraint on official action, and the results were larger budget deficit and higher inflation.  The zero bound on interest rates also posed a constraint on behavior. Until this year, despite the long struggle against deflation, the Bank of Japan never instituted a negative policy rate.  Since the early days of the Great Financial Crisis, some had warned of limits of...

The Commitment of Traders reporting period ending March 8 showed little position adjusting ahead of the ECB meeting two days later.  A little more than 3/4 of the gross positions we track saw less than 5k contract change and only two were above 6k.   The gross long speculative sterling position was cut by a quarter or 9.6k contracts to 29.4k.  Speculators also built a larger gross long Australian dollar position, adding 9.7k contracts to 86.1k. The conventional focus on net positions does...

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 US Dollar Index posted an outside down session on March 10. It drove the five-day moving average through the 20-day average, and turned the RSI and MACDs. Follow through selling ahead of the weekend was limited, but a break of 96.00 suggests potential toward year...

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 Great Graphic, made on Bloomberg shows the greenback's...