Simon Smith

Re-writing the dollar rules

Yesterday was a strong indicator of the changing dynamic in FX markets, in that we saw the dollar weaker even when stocks were on the back-foot and political tensions in the Middle East were escalating. We moved away from the “risk-on/risk-off” world seen in the wake of the global financial crisis and the dollar was weaker despite these twin forces that in the past would have propelled the dollar higher. Since then, we’ve seen the dollar recover, with the dollar index bouncing off trend line ...

Simon Smith

More sustained dollar weakness

The dollar is on the defensive in the early part of the European session. This is most noticeable on USDJPY, which is now below the 118.50 level. The price action is not more indicative of a dollar correction after the volatility seen in the wake of the Fed decision, rather than a pause in the up-trend. This could well serve to increase FX volatility into the end of the month as longer-term players are forced to re-consider their positioning. Elsewhere, the dollar correction is also apparent ...

Simon Smith

Still deciding on the dollar

Yesterday was about the debate regarding the dollar; consolidation or correction. As always, it depends where you look, because at the moment it's a fairly mixed picture. Despite some goods efforts, EURUSD has not yet pushed about the 1.1043 high made on Wednesday last week. The dollar index has pushed below the low made last week, in part helped by the strength of the Swiss franc. On the other side, sterling struggled in the wake of the latest inflation data, which underlined that the UK is ...

Simon Smith

Gauging the dollar correction

The question for markets right now is whether the dollar is pausing for breath after last week’s volatility, or we are seeing the start of a dollar correction from the relentless uptrend seen over the past 8 months. The dollar index itself remains above the lows of last Wednesday (96.628), but if this is broken, then the dollar will be facing a more bearish near-term outlook as stops are triggered. For EURUSD, Wednesday’s high of 1.1043 is the initial upside resistance, with the single currency ...

Simon Smith

Greece concerns resurface

The result of last week’s change in Fed language was a reversal of the recent dollar strength, together with new highs in Eurozone equities. The Eurostoxx 50 has risen for seven consecutive weeks, whilst the UK FTSE has broken through the 7,000 level. On the face of it, the QE party has further to run and especially for the Eurozone. The looming risk on the horizon once again in Greece, where the pressure once again is on as the Greek PM has been meeting with Eurozone officials and the German ...

Angus Campbell

Dinner in Brussels

The standoff between Greece and European leaders continues and last night a dinner was held between Greek Prime Minster Alexis Tsipras and key figures in the Eurozone including Angela Merkel and Mario Draghi, to try and end the stalemate. What remains clear is that the Eurozone is standing firm, refusing to give Greece any preferential treatment and also refusing to release the agreed extended bailout funds until they present a meaningful reform plan. Putting aside the explosive volatility of ...

Angus Campbell

Dollar shake out

Dollar bulls were squeezed last night as we saw some dramatic moves in FX markets with the dollar plunging after the Fed lowered its inflation and growth forecasts last night. There was every likelihood of there being a spike in volatility during and after the FOMC decision which we warned about yesterday, as well as being consistent in saying any rate hike is likely to come later than many were anticipating. As expected the word “patience” was removed and traders were caught off guard as the ...

Angus Campbell

Markets more focused on Fed than Budget

We looked yesterday at how the markets might react to today’s UK Budget, a critical one from a political point of view being the last one before the General Election, but when it comes to the financial markets investors are going to be focusing on the Federal Reserve’s meeting and statement later this evening. Ahead of then attention will be given to unemployment figures for the UK and the latest BOE meeting minutes so sterling is certainly going to be a focus throughout the day but the main ...

Angus Campbell

Dollar strength on hold ahead of Fed

The dollar is pausing for breath ahead of the Federal Reserve’s interest rate decisions, policy statement and economic projections tomorrow. The dollar index is on course to post its ninth monthly gain in a row having rallied 25% since the middle of last year, to levels not seen for 12 years. The speed with which the dollar has appreciated has caught many by surprise but even still dollar bulls remain plentiful expecting further strength as we near the first rate hike from the Fed. The debate ...

Angus Campbell

Patience required ahead of Fed

All eyes on the Fed this week as the market becomes more and more focused on whether the word “patience” will be dropped from their statement this Wednesday. Considering the focus that certain wording elements of the Fed’s statements have attracted in the past it will not come as a surprise if they remove “patience” to avoid any further controversy, but no doubt observers will pick up on other or new language to gauge the tone from the Federal Reserve, with particular scrutiny being given to ...

Simon Smith

Watching Canada jobs data

As next week’s Fed meeting approaches, more thoughts are being given to the impact of the relentless rise of the US currency on the broader economy. This in part explains why the dollar has become a little more reticent to push ahead, given that there are signs that it is starting to impact exports and with it, the outlook for the economy and inflation. But it’s not just about the dollar, given the appetite for lower currencies being seen elsewhere in the developed world, helped by cuts in ...

Simon Smith

The dollar dilemma

We are entering the European session with the dollar under pressure, but that comes after what has been a relentless rise so far this month and especially so against the single currency. We’ve marked a 1.0495 low on EURUSD in overnight trading and as we highlighted yesterday, the risks of some sort of rebound were growing given the price action seen over recent days. The dynamics underlying the single currency have been done to death, but the question for markets is how far they can still run. ...

Simon Smith

The push to parity

The path of least resistance for the single currency has been lower through most of the month and that was especially the case yesterday. The euro was down 1.4% over the day, with a push below the 1.07 level seen towards the end of the session. Equities were also weaker across the board, with bond yields once again being crushed, which added to the weaker currency tone. The move is a combination of a strong dollar, with the euro looking the most likely candidate against which to go short, given ...

Simon Smith

Fresh dollar gains

After the drama of Friday, we saw a relatively subdued start to the week in FX markets. The two main events of the day, namely the start of QE in the eurozone and also further tension surrounding Greece look to be more "slow burn" affairs, rather than having an instant impact. Indeed, both have many unresolved issues. For the ECB's QE program, it is how to deal with buying bonds with negative yields and the resulting losses that risk ending up hitting the central bank's bottom line. This is ...

Simon Smith

The dynamics of divergence

The single currency starts the week scraping itself from the floor after last week’s concerted push lower. The break below 1.10 on EURUSD happened before the US jobs data, but the firmer than expected release led to further dollar strength and the euro suffered the most in the wake of the ECB’s detailing of bond buying the day before. The QE program starts today, so the coming days are likely to see some indications of how the technicalities of the program are panning out. On the subject that ...

Angus Campbell

From ECB to NFP

A bit of volatility in EURUSD during yesterday’s ECB press conference saw the rate recover to back above 1.1100 as Mario Draghi announced upgrades to growth forecasts for the Eurozone, but the gains were swiftly reversed as we now sit just above 1.1000. Although there was the odd brief visit below 1.1000 the fact that the euro didn’t fall out of bed shows that parity to the dollar, if it comes at all, may not be for a while. The short euro trade remains a very crowded one and so a snap back ...