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Downward Dollar Dominates Markets. A Trend Easy to Beat?

01/15/2018 1:55 pm EST


Robert Savage

Partner & CEO, CCTrack Solutions

The moves down in the USD dominate markets. Politics may be more important than rates, growth or value. The technical picture is overdone and will make tomorrow a raw deal for those who think the trend will be easy to beat, writes Bob Savage, CEO of Track Research.

Today is a U.S. holiday so writing a market report ahead of the U.S. open is more an exercise in understanding the trading day in Asia and Europe and preparing for tomorrow rather than anything more immediate.

Given it’s winter here and the temperature won’t break freezing consider the 1948 film Raw Deal – worthy of understanding the old worldview of how emotional drama ends badly.

The headlines aren’t about economics but politics with three stories catching the market focus:

1) UK Brexit talk from Boris Johnson suggesting no deal is better than a soft deal means many are thinking the entire Brexit nightmare may just go away. This is wishful thinking and raw deals from the EU remain more likely.

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2) The Trump push for a DACA deal and budget deal to avert yet another U.S. government shutdown will be the sage in the U.S. for the week. Democrats are wary. The Senate will also be voting on Powell nomination.

3) The Bundesbank will include Chinese yuan in its reserves according to Dombret speech in Hong Kong at the Asia Forum. Euro/Chinese yuan (EUR/CNY) is up 19% since Jan. 2016 (when it created the RMB basket) – and perhaps this is a way to tell China to cap its depreciation against the EUR. Certainly it’s a way to intervene and support the CNY.

Notable that the PBOC fix today was 0.55% stronger against the U.S. dollar (USD/CNY). The point of today maybe in the balancing of economic growth against the national interests for sustainability and stability – with the overnight speeches from IMF Lipton and BOJ Kuroda important to consider.

The moves down in the USD dominate all markets and suggest that politics maybe more important than rates, growth or value – but the technical picture looks overdone and will make tomorrow a raw deal for those that think today’s trend will be easy to beat.

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