Category: Daily Look

Dollar enjoys underlying bid



One of the main fears last month was that markets were too complacent on the prevailing risks. Volatility measures were at multi-year lows, stock markets continued ever higher with no real corrective activity, with no signs of concern over geo-political events in Russia and beyond. In many ways, it is comforting to see markets taking a more sanguine view of the world, without having fallen out of bed with it.

This can be seen in the continued higher stance of the VIX index after the sharp rise seen late July, together with the continued fall in bond yields, culminating in the German 2 year yield touching zero for the first time in over a year. Stock markets have also taken on a more cautious tone, the S&P having corrected nearly 3% from the year high seen last month.

For FX, there have been several implications. The first is that the dollar’s underlying bid, helped initially by better than expected data, has found further support. We’ve also seen what can best be described as traditional safe-haven currencies outperform in the past few weeks, with this most notable on USDJPY through the first half of August. The CHF has also remained buoyant, but also constrained to a degree by the SNB’s 1.20 floor on EURCHF. Finally, the CVIX measure of FX volatility has also increased to levels last seen early June, but still remains at very low levels historically.

The main risk event for currencies this week comes on Wednesday, with the latest Bank of England Inflation Report. Sterling has waned of late following the surge seen during June and the early part of July, on the growing expectation that the Bank could raise interest rates as early as this year. For sure, some of the recent correction has been down to broad dollar strength, but sterling has also been lacking in data and indications to further push the view that rates are likely to rise this year. Having come out in June and explicitly questioned market pricing (under-estimating chance of rate hike this year), Carney seems unlikely to reverse this stance this week when the Inflation Report is released. We may have to wait until September for a more sustained impetus on sterling, especially if we see some members of the MPC voting for higher rates by then (as seems increasingly likely).

Further reading: Identifying When To Let Your Forex Trades Run Towards Bigger Profits

Markets clouded by many  uncertainties

Markets clouded by many uncertainties

Mario Draghi did little to surprise the markets yesterday by maintaining quite a consistent message and not announcing anything new or radical.  There was certainly a tinge more of a dovish slant to the press conference, but maybe not as much as had been expected and other than the odd reference to the ABS program

Hints of risk aversion abating

Hints of risk aversion abating

Investors seem to have brushed aside concerns over the escalation of tensions between Russia and Ukraine as risk assets bounced from their lows yesterday, including the euro which saw EURUSD recover from lows around 1.3335 back to 1.3375 where it is trading this morning.  No more evident is this lack of concern over the geopolitical

Kiwi declines on fall in unemployment

Kiwi declines on fall in unemployment

We mentioned in yesterday’s note to watch out for New Zealand unemployment overnight and it came in lower than expected hitting a five year low of, 5.6% as opposed to 5.8%, however employment was actually lower than expected giving a mixed picture which has sent the Kiwi dollar lower.  Ever since NZDUSD retreated from its

Dollar bulls not reasserting  themselves yet

Dollar bulls not reasserting themselves yet

It’s all about services PMI data today and already overnight we’ve seen softer figures from China, but this doesn’t seem to have dented any of the indices or currencies as one would usually expect.  The Aussie dollar for example has barely battered an eyelid, still trading around the 0.9340 level following its bounce last Friday,

Risk Gets Boost on BES Bailout

Risk Gets Boost on BES Bailout

The rough ride for equities last week appears to have run its course for the time being, as global sentiment has found a foothold this morning and is leading stocks higher as the new trading week gets underway. The lift in risk appetite is in part due to the market’s positive reaction to the bailout

Focus on Europe this week  in nonfarm aftermath

Focus on Europe this week in nonfarm aftermath

The dollar gave back some ground on Friday following the worse than expected nonfarm payrolls and rise in unemployment across the pond.  It was the euro that benefitted most, finding support around the 1.3370 level as it recovered to back over 1.3400 and is trading at 1.3420 at the time of writing.  It was also

Pound stabilises after falling due to UK consumer credit data

Pound stabilises after falling due to UK consumer credit data

GBP/USD has consolidated under the 1.70 level since Friday.  The pound fell on Tuesday after UK consumer credit data printed weaker than expected.  Mortgage approvals, released at the same time, were a little better than expected, but the news was shrugged off as investors sold GBP vs. both the USD and EUR.  Month end buying

Nonfarm payroll day

Nonfarm payroll day

Investors are slowly but surely preparing themselves for higher rates as equity markets suffered a blow yesterday, the dollar continued to appreciate or at least hovered around its recent highs and the US 2 year Treasury yield reached its highest level since the first half of 2011.  With the first dissenter sitting on the FOMC

Eurozone inflation data  and weekly jobless claims watched

Eurozone inflation data and weekly jobless claims watched

In response to yesterday’s Outlook question, the answer is yes and in some style.  The US not only recouped its growth losses for Q1 by showing Q2 growth was 4%, but the decline in Q1 was revised upwards.  Unsurprisingly, the dollar surged on the news sending all the major pairs lower and USDJPY spiked getting