It’s been a while since the US president expressed his dissatisfaction with the strength of the
dollar, but he was at it again over the weekend. Following Trump’s comments, the US
currency did slip ever so slightly on the opening last night, but generally the reaction was
extremely muted, a kind of digital yawn if you like.
In repeating his criticism of the Fed for the level of the dollar he merely underscores his own
ignorance of what is equally behind the US currency’s elevated position. The very thing that
he himself seeks to promote- relative economic outperformance. So, if you truly want ‘To
make America great again’ Mr Trump then accept there’s a price to pay for the success of
such an aspiration- a dollar price!
Anyway Trump has made his opinion known several times now, so continued repetition may
prove counterproductive, if it hasn’t already. At the end of the day, the dollar is like the tide,
it ebbs and it flows, so ride it on the way in, and ride it on the way out, but sometimes you
simply have to wait for it to turn first.
Assuming the markets can look beyond the politics on all fronts there are a number of
important economic releases/central bank decisions due this week. The headline of all those
(noted below) is the RBA, BOC and ECB monetary policy decisions concluding with the US
monthly jobs numbers on Friday. Whilst no policy changes are expected anywhere this
week, as is often the case, it will be the soundbites and statements that could have the most
impact.
So, with the dollar pretty much disregarding the US presidents displeasure, the USDJPY is
largely unchanged as it hovers around the 112 mark. That in turn has continued to have an
impact on gold which has fallen further since Friday, dropping through $1300 and
approaching $1290 ahead of the European reopening today. Understandably the moves in
the JPY and Gold are again being underpinned by US yields with the 10year higher again too, trading around 2.76% this morning.
The pound did lift on the Asian opening, snapping some of Friday’s losses, on further
optimism that the EU will offer some sort of olive branch on the backstop. As to whether or
not that is the case, and in turn would be enough for a parliamentary consensus remains to
be seen. Beyond that and all of the above, it just leaves the two main events this week
which could impact the markets: the ECB policy decision and the US monthly payroll report
due on Thursday and Friday respectively.
The ECB in particular will be in the spotlight for signs that just maybe Draghi will look
through the recent economic weakness and that might provide a fillip for the EUR, but
personally I remain doubtful that he will. The markets will also be on the lookout for signs of
US wage inflation (or lack of it) on Friday which if nothing else will surely further annoy the
US president if that does lead to higher yields and a firmer dollar.
Whilst the EURUSD itself is continuing to give a very good impression of a comatose patient
that surely cannot last forever can it? At some point it will either emerge from that or someone will have to take the decision to switch off the life support machine. The nearest
points of interest for me now reside around 1.1225 where this is a pretty clearly defined
double bottom in place and thereafter at 1.1185. The latter if broken could be decisive for
the next move. Conversely, a break above 1.1450 could also endorse the opposite.
However, all the time the EUR is the perceived funding currency of choice it will require
something of a fundamental change in current ECB policy or at the very least, some sign that
a change will be coming sooner rather than later.
The markets are now even more seriously buoyed for a good outcome in the China/US trade
talks than they were this time last week. Once again the weekend the press would have us
assume that a deal is nigh. Much of this seems based on optimism with scant hard detail, so
a healthy degree of scepticism is still warranted I feel, but the signs are increasingly positive
all the same.
Meantime, the US president can bleat and moan all he likes about the dollar and the Fed,
but increasingly all he might get back are the echoes of his own rhetoric as he stands
barefoot on the beach, barking at the tide!
Important Economic Releases Due this week
05/03- 3.30am Reserve Bank of Australia (RBA) Monetary policy decision
Benchmark rate expected unchanged at 1.50%
05/03- 9.30am UK CIPS February Services PMI Index
06/03- 12.30am Australia Q4 2018 final GDP revision
06/03- 1.15pm US ADP February private payroll report
06/03- 3.00pm Bank of Canada Monetary Policy Decision
Benchmark rate expected unchanged at 1.75%
07/03- 12.45pm Eurozone- ECB Monetary policy decision
No expected changes to all the benchmark rates
07/03- 1.30pm ECB post policy decision press conference
08/03- 1.30pm US February monthly Jobs report