Will 110.50 hold today becomes emotional and perhaps technical making the chart more difficult to judge. Don’t catch a falling knife, but does that contradict lessons from the last few years that we are supposed to buy every dip and ignore all words, asks Bob Savage.
The focus on currency and trade wars shifted to words as the Iranian and U.S. leaders shared threats over the weekend. The latest tweet from President Trump was clear: “To Iranian President Rouhani: Never, ever threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before. We are no longer a country that will stand for your demented words of violence & death. Be cautious!”
His was a response to Iran’s threat of the “mother of all wars.” Sticks and stones beat words today.
This overshadowed the Argentina G20 FinMin meetings where all countries signed the communique, an improvement from the G-7 communique in June when the U.S. withdrew its signature over an ongoing trade conflict with Canada, but it was noted that rising trade tensions posed a risk to global growth.
U.S. Treasury Secretary Mnuchin tried over the weekend to tamp down concern that a currency war may be starting, reaffirming the U.S. commitment to a strong dollar. All of the push by the U.S. for changing the status quo starts with words and threatened actions. This become a reality with tariffs and many are waiting and watching if the USD and intervention risks are next in line.
Words matter little today, just ask anyone that is trading rather than sitting on the beach, but the problem of volatility and the higher noise-to-signal ratio makes many obvious trends less powerful – with the Japanese yen (JPY) move today a classic example. We start with risk-off due to global trade, Iran/U.S. threats, BOJ policy uncertainty and with USD uncertainty – all make the fundamental drop in the USD from 113 to 111 logical.
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