US Dollar Ready for Rally Yet May Need a Different Horse

11/07/2017 11:22 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

The question is whether the USD itself is on the breakout stage even as the U.S. bonds languish in a 2.31%-2.47% range, writes Bob Savage, CEO of Track Research Tuesday.

As Rekindling wins the Australian Melbourne Cup, markets may be reminded that different courses require different horses.

Irish trained horses swept the event today even as Ireland is suggesting a 5-year transition period for Brexit. The collateral effects of Brexit are yet to be felt but remain greatly feared.

The UK BRC retail sales report that started the overnight trading was a disappointment -1% rather than the expected up 0.8% gain – leaving the BOE rate hike a one-and-done story for many if not an outright mistake.

The Australian RBA was on hold again, not unlike some of the home-grown horses that seemingly didn’t move on the track in Melbourne.

The higher oil prices are showing up in real wage pain in Japan and in real bond pain in China and India today. The rally in periphery bonds in Europe is the headline grabber after weaker German industrial production, final Sicily vote count and after more ECB speeches – easy money isn’t ending anytime soon but the U.S. is different as the U.S. bonds await supply and fear some pain given the ongoing tax reform, growth mix.

So, with U.S. bonds offered, the USD is bid almost everywhere. The news flow ahead is going to be light – JOLTS and more central bank speeches. The question is whether the USD itself is on the breakout stage even as the U.S. bonds languish in a 2.31%-2.47% range. The U.S. dollar (USD/EUR) rally seems ready for another leg to 96 but that may require a different horse other than rates to get there.

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