View from London: Euro the Driver for Ominous USD Bear Trend

10/11/2017 3:19 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

The balancing act of predicting the future whether growth or inflation has plenty of forecast error–and that may be the heart of the day ahead as the IMF meetings start with the WEO sharply higher, writes Bob Savage, CEO of Track Research in his Wednesday commentary.


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Fortune telling has a long history and its success rate with markets hasn’t worked so well despite its age.

Freya Stark - the British female explorer of Iran and Afghanistan made clear the danger of our static beliefs: “The most ominous of fallacies - the belief that things can be kept static by inaction.”

Dallas Fed President Kaplan noted that the 10-year U.S. yields are too low and an “ominous sign” for trouble ahead. Others blame the global QE and negative rates.

Some see the coordinate monetary policies from the crisis driving term-risk premiums lower globally – and perversely removing diversification as a tool for bond portfolios.

The balancing act of predicting the future whether growth or inflation has plenty of forecast error – and that maybe the heart of the day ahead as the IMF meetings start with the WEO sharply higher.

Better times ahead hasn’t been the call of the dismal economists in Washington for years. Of course, the risks to growth remain – starting with politics.


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A B-1 bomber sortie, talk that Mexico will walk away from NAFTA talks, news that Turkey will actually jail the U.S. diplomat – all that geopolitical news started the overnight session.

There were bright spots, the Catalan decision to delay its push for independence in hopes of drawing talks with Spanish PM Rajoy and the formation of a Netherlands government 10 months after the election. This got better with U.S. Turkish Ambassador Bass saying he was in talks over the visa ban and worse as PM Rajoy starts a process that could lead to a suspension of the Catalan government.

The BBC interview with UK PM May didn’t help GBP today as she fell silent on how she would vote in second Brexit ballot.

For trading today, the lack of bigger moves except in emerging markets forex makes clear that fear is beating greed at home.

There are some who see the USD back in its downtrend given the stall of rates ahead of the FOMC. There are others who see the EUR overdone with the Catalan saga a sideshow to fraying politics clashing with a reluctant ECB tapering.

The EUR is the driver for ominous USD bear trend returning and unless we see 1.1880 break this is just another bad forecast with a larger risk for 1.16 and 1.1480.

Watching 55-day at 1.1836 for the pivot of risk in forex and other markets.

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