Buying support for mining stocks has offset ongoing profit taking in banks allowing the ASX 200 index to nervously hold the line in early trade following 2 weak days.

The support for mining stocks follows a good session for base metals on international markets and broker upgrades for Fortescue Metals. Iron ore bears remain in capitulation mode as they consider the possibility that the price will continue to be supported by Chinese mine closures as Fortescue is predicting.

Elsewhere, the US Dollar remains at the centre of the ongoing market correction of the “Trump Trade”. The US Dollar Index is now 4% below its January peak and only 1.7% above its level immediately before the US election.

The overnight decline in the US Dollar was assisted by more public articulation of the Trump Administration’s concerns that it’s overvalued.  Whether by design or by accident, these statements have been well timed.  As Central Banks have learned, statements about a currency’s valuation tend to have greatest impact when markets have already begun moving in the desired direction or are showing signs of losing momentum. These statements have added to existing downward momentum in the US Dollar as markets re-asses their previous unambiguously pro- growth view of the Trump Administration.

The recent weakness in the US Dollar increases the possibility for volatility surrounding tomorrow’s Fed meeting. If the Fed was to open a conversation about moving to run down its asset holdings, the Dollar could react positively.