Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

U.S. Dollar Turns King For A Day

Published 03/16/2018, 01:13 AM
Updated 03/05/2019, 07:15 AM

King For A Day

The dollar turned king overnight in a market lacking conviction across most asset classes got swept up by a wave of position adjustments as investors turn incredibly indecisive heading into next week's FOMC. Indeed it’s shaping up to be arguably one of the most critical Centeral Bank policy events in some time as Jay Powell gets set to dictate the course of Fed policy for the remainder of 2018 and beyond. Given the enormity of the risk event, traders are getting remarkably anxious awaiting hints on forwarding guidance, so we should expect interest rate uncertainty to intensify as we near the event horizon.

But the pace of the dollar short covering was heightened by US economic data which showed the number of Americans applying for unemployment benefits fell while import prices rose more than expected, the later buttressing inflation expectations.

And sure the Kudlow interview on CNBC has some market observers anointing him the new Market Oracle of Pennsylvania Avenue after his King Dollar sell Gold remarks; the fact is traders didn’t react to the news at all, and why would they? Indeed, on that narrative alone I wouldn’t rush out to buy tickets for the next US dollar coronation, which is probably years away given that US investors are quickly running out of reason to be optimistic as the increase in vacuous rhetoric emanating from the Whitehouse continues to dent market sentiment.

Bond Markets

US yields have backed up overnight supporting the USD, but without “risk on” supporting global equity market it has left both commodity bloc and EM Asia currencies prone to risk.

Equity Markets

The recent flow of headlines, especially those centering on trade, are creating an air of uncertainty, and when it comes to investor sentiment, uncertainty fuels anxiety which causes investors' ”Fear Gauge“ to ratchet higher. Whether its an escalation of a trade war or leeriness after news that US Special Counsel Mueller subpoenaed more documents from the Trump organisation, there’s always some prattle coming out of Washington these days that continues to cast a dark cloud over the markets.

Even in the face robust US economic data, the US equity market could not hold onto gains as investors' fears about the US administration trade policy trumps all else. This is despite thinly veiled efforts to temper markets when Peter Navarro, Director of the White House National Trade Council, suggested the US could put tariffs on foreign goods without sparking a global trade war. Of course, he didn’t quite explain how that was achievable.

Oil Markets

There is no escaping the oil market yo-yo as sings of growing oil demand are offsetting the bearish overtones from Shale oil output, at least for today. The International Energy Agency in the heavily subscribed monthly report suggested global oil demand should grow by 1.5 million barrels a day, to average 99.3 million barrels a day in 2018. The estimate was an upward revision of 90,000 barrels a day compared with last month’s report.

The market positioning remains incredibly frangible to the continually shifting supply and demand narrative as the latest IEA headline implies market rebalancing is working. However topside price action remained well in check given the burgeoning Shale oil output projections for 2018 and beyond.

Gold Markets

Gold prices plunged as the USD gained some swagger overnight as traders get incredibly anxious about the possibility of a 4th interest rate hike this year. When interest rate rhetoric rises, gold plummets, although the rise of geopolitical tensions between the UK and Russia likely tempered the sell-off.

Traders remain incredibly indecisive about the course of Fed policy, and all assets markets are enduring position adjustments where the lack of investor participation could exaggerate price action. Trader’s are precisely in position reduction mode as opposed to risk-taking style.

Currency Markets

Currency markets remain in well-defined ranges as traders prepare for the pre-FOMC position chop fest.

The Euro

The euro continues to consolidate with the near term top side firmly in check ahead of the FOMC meeting on the back of overtly dovish Draghi and growing uncertainty over Fed forward guidance.

The Japanese Yen

The ever so slight moderation in negative risk sentiment has seen USD/JPY try to follow the broader dollar sentiment higher. However, the Abe political scandal continues to haunt investors and the potential threat to Abenomics should curb top side momentum.

The Australian Dollar

While the Aussie initially became a bit of a passenger with the stronger USD in the driver’s seat, however, the Aussie is getting hammered mercilessly as trade war rhetoric with China is likely to escalate. Given Australia's precarious position in the China supply chain, the potential escalation of a regional trade war is not sitting well with the G-10 trading community this morning who have set their sight’s on the toppling Aussie.

Falling iron ore and copper prices aren’t helping sentiment either.

The Malaysian Ringgit

The ringgit was underperforming this week due to quarter end repatriation flows, but now the USD/MYR is caught up in the broader USD dollar strength and rising US bond yields. But with risk sentiment waning, regional equity market will struggle, and the threat of additional regional outflows as trade war rhetoric increases could dent all regional currency sentiment dragging the MYR lower by proximity.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.