Originally published by AxiTrader
QUICK SUMMARY
President Trump took aim at the Fed's rate rises, Chinese and European currency management overnight and then this morning via Reuters. He made it clear he doesn't want further rate rises and implied the US dollar is a little strong.
As a result, the US dollar, in index terms, is down about 0.35% at 95.75 while the euro is up a similar amount at 1.1486. That the Fed’s Raphael Bostic said one more hike and he’s watching the curve added a little bit to the US dollar move but the President was the key. GBP/USD is up about 0.3% as well as it closes in on 1.28 again – it’s at 1.2798 this morning.
On the commodity bloc the recovery in copper, rally in oil, and improvement in the CRB didn’t really help. The Aussie dollar is just marching in step with the euro still with a 0.35% gain to 0.7341. The kiwi missed the memo and is largely unchanged at 0.6644 while the Canadian dollar only gained 0.1% with USD/CAD at 1.3035.
EM currencies are mixed. The Turkish lira lost about 1% with USDTRY at 6.07, but it’s bouncing around a little. The Brazilian real has lost 1.14%, but the South African rand is 0.6% better bid. USD/CNH is flat at 6.8359. Let’s see where things go today now that President Trump has apparently also said he doesn’t expect much from the trade talks with China this week.
BIGGER PICTURE
The US dollar isn’t exactly pressured. But its reversal is continuing this morning after those comments from President Trump about the Fed made folks wonder if Powell and his colleagues have the gumption to take on the President. My sense is that this Powell Fed is doing what it thinks it needs to do and that a message will be sent to the President that the Fed IS doing what’s best for the country by gradually raising rates. Not to choke off the recovery but extend it for as long as it wants.
Sources: St Louis Fed Data Base
As you can see in the above chart of financial conditions in the US rates, monetary conditions, are still accommodative. In fact based on this measure you’d have to say they are extremely accommodative. So one or two more rate hikes this year and one or two in the first half of next year is not going to derail a US economy which has solid momentum – Atlanta Fed GDPNow is still at 4.3%. SO unless the data deteriorates my sense is the right insurance the Fed believes necessary to let the expansions – like this US stocks bull market on Wednesday – run to a new record is gradual rate hikes back to neutral.
So, while the President has knocked the Greenback a little lower overnight, something that perfectly suited my positions and the tone of the market since last Thursday my time. The overall divergence between the US economy and other nations as well as the Fed and other central banks means I retain my US bullishness medium term.
But we have to work through this US dollar reversal first. As I highlighted yesterday my target in EUR/USD terms initially is around 1.1550 and then we’ll see what happens. Such a move would naturally also keep the pound, Aussie, yen and others bid.
And for a currency like the Canadian dollar it means USD/CAD is likely to continue to respect this trendline and head towards the 1.2950 region once again.
DATA:
On the day we get the RBA minutes here in Australia. South Korean PPI is also out this morning along with visitor arrivals in New Zealand and Japanese industry activity. Tonight its very quiet with wholesale sales in Canada and the Redbook in the US.
Have a great day's trading.