View from London: Risky Dollar in Focus Amid Forex Reshuffling
08/04/2017 2:53 am EST
Reshuffling positions in forex in Japan, Australia and Europe isn’t likely to lead to a new trend. The USD is still the focus, writes Bob Savage, CEO of Track Research in Friday commentary from London.
“Insanity is doing the same thing over and over again and expecting different results.”
Neither Ben Franklin or Albert Einstein said this but this tattered wisdom is attributed to both. The reason many try to do the same thing isn’t insanity but a hope for quantum noise. If you wait, something different can happen – that is a key argument for central bankers and traders facing a low volatility, lower yields world – as in “time cures all wounds.”
However, nothing is random, even a reshuffled deck. Einstein did say, “I shall never believe that God plays dice with the universe.” That doesn’t make him a true believer or a doubter of quantum physics, just one who sees a greater system at play.
Maybe that is the lesson for the day as we wait for more U.S. economic data and hope a reshuffling of unemployment produces higher wages.
In Japan, Prime Minister Shinzo Abe reshuffled his cabinet Thursday, buying political time but not enough to help wages there.
In Australia, the RBA SOMP highlighted the risk that low real wage growth is a risk for household spending.
The Trump administration has been reshuffling positions aggressively–just ask the Mooch–but today we will find out if U.S. wages are higher and that seems to be all that matters as central bankers want the Phillips Curve to work. Low unemployment begets higher wages and that drives inflation being the insanity of the moment.
Overnight the focus started with the U.S. dollar (EUR/USD) weakness extending with U.S. bonds bid as the special investigator into Russian meddling Robert Mueller called a grand jury.
Then weaker Japan wages and as a RBA SOMP drive prices to further risk-off but this moderated into Europe with better German factory orders, a modestly hawkish sounding BOE Broadbent and stalls as we all wait for the U.S. wage data.
Reshuffling positions in forex isn’t likely to lead to a new trend. The USD is still the main focus for markets and its risks remain in the 200-week breaking or 93.65 returning.