After staging a major rally through 2015, USD had outperformed pretty much everything, mowing down everything in its path building in expectations of an aggressive rate hike from the Fed and aggressive additional stimulus from the ECB and elsewhere. Since November, however, the tide has been turning. The US Dollar Index failed to clear 100 in November and since then has failed to rally on what should have been Dollar supportive news like the Fed rate hike and stimulus moves from the ECB and Bank of Japan, indicating diverging monetary policies had been fully priced in to the greenback.
A top has been forming in USD over the last few months, but today was the day that support finally gave way and the Dollar plunged, kicking off a new downtrend. The straw that broke the camel’s back were comments from New York Fed President Dudley, one of the big 3 at the Fed who indicated tighter financial conditions is a matter of concern to the Fed in contrast to KC Fed President George who said yesterday it was not a concern and not unexpected. Dudley also suggested a weaker global economy and a stronger USD could hurt the US economy. The negative impact of the higher dollar should not have come as a surprise to anyone who has followed the chorus of complaints from US captains of industry about the negative impact of the higher USD on their earnings for the last several quarters.
Still, it now appears that USD has turned the corner and even though positive ADP payrolls and slightly below expectations service PMI figures for the US likely won’t change the Fed’s plans for March, traders appear to be increasingly thinking the US rate hike program could be shorter than the recent four hike party line has suggested.
Resource currencies and commodities were already on the move higher overnight, but have exploded through resistance for big gains on the USD plunge. One of the strongest technical moves was in crude oil which dropped briefly on a bigger than expected US inventory build then took off to the upside, a sign that bears have become totally exhausted and washed out of the market for now. Crude oil received early support from talk out of Russia that it remaisn open to talking about stabilizing the market. Rumours appeared in the afternoon that six OPEC and non-OPEC countries have agreed to hold a meeting but there have been so many rumours and denials that
It’s a quieter day for Asia Pacific news but trading could still be active on follow through from today’s US action and yesterday’s improved service PMI reports for China, Australia, Japan, Singapore and India. AUD and NZD had been trending higher even before the USD started really falling on the back of strong New Zealand employment and a rising copper price as China collapse fears fade.
has been struggling with JPY soaring even after Bank of Japan Governor Kuroda indicated scope for more stimulus. Big gains for Alcoa and Freeport in US trading suggests a surge of interest that mining stocks that could benefit Australian miners today.
Tomorrow the focus is on the Bank of England. Sterling has already been on the rebound with stronger than expected UK service PMI indicating the feared impact of Brexit uncertainty on the economy hasn’t materialized and that the recent selloff was overdone. While no changes are likely, the inflation report could attract attention and any comments from Governor Carney. While it now appears the bank doesn’t want to rock the boat ahead of the big vote likely in June, traders may look for signs of whether UK rate liftoff could move back up to the second half of this year after being pushed off to next year.
Harley-Davidson 12% dividend increase
Allstate $1.60 vs street $1.34
MetLife $1.23 vs street $1.36
Significant announcements released overnight include:
US ADP Payrolls 205K vs street 193K
US ADP Revision 267K up from previous 257K
US DOE crude oil inventories 7.7 mmbbls vs street 4.0 mmbbls
US DOE gasoline inventories 5.9 mmbbls vs street 2.5 mmbbls
US Bloomberg implied oil dmnd 16,357 mmbbls vs previous 15,632 mmbbls
Service PMI reports:
US ISM 53.5 vs street 55.1
US Markit 53.2 vs street 53.7
Sweden 59.3 vs street 57.6
Spain 54.6 vs street 54.3
Italy 53.6 vs street 54.0
France 50.3 vs street 50.6
Germany 55.0 vs street 55.4
UK 56.1 vs street 55.4
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
8:00 am GMT ECB Draghi speaking
8:30 am GMT UK Halifax house prices street 9.0% vs previous 9.5%
12:00 pm GMT ECB Mersch speaking
12:00 pm GMT UK BoE interest rate 0.50% no change expected
12:00 pm GMT UK BoE QE target £375B no change expected
12:00 pm GMT UK Bank of England inflation report
2:15 am EST FOMC Rosengren speaking
8:30 am EST FOMC Kaplan speaking
8:30 am EST US jobless claims street 277K
10:00 am EST US factory orders street (2.8%)
10:00 am EST US durable goods final street (4.5%) vs previous (5.1%)
10:30 am EST US natural gas street (154 BCF)
5:00 pm EST US Mester speaking
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