Economic Conditions

  • Weekend headline news from G7, Japan and the Bayer/Monsanto merger.

    The G7, Japan's Economy and a Big Chemical Merger

    The capital markets are off to a mixed start to start the last week of the month.  Asian shares were mostly higher, though the Nikkei shed 0.5%.  European shares are also higher, extending the three-week high seen last week.

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  • The Fed will likely keep the normalization process going in June.

    Closer to Normal and the U.S. Dollar Moves Up

    The combination of stronger US economic data and signals from the Federal Reserve that it is looking to continue the normalization process helped the dollar extended its recovery.  The dollar posted a significant technical reversal against many of the major currencies on May 3.  The Dollar Index rose for its third week, as the greenback climbed against all the major currencies but sterling (+0.9%).

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  • Japan's GDP surprised to the upside while FOMC minutes were dull.

    Japan GDP Surprises, FOMC Minutes Do Not

    The US dollar is rising against all the major currencies today.  The Australian dollar is retracing a sufficient part of its recent gains to suggest that the current phase of the US dollar's recovery is not over. Given that the Aussie topped out a week before the other major currencies, it is reasonable that it begins recovering first.  Its recent resilience was noted, but that has evaporated today, but a 0.8% drop by early European activity. 

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  • The markets may or may not respond to soft Chinese data.

    Responding to Soft Chinese Data by not Responding

    The most notable thing is not what has happened, but what has not happened.  The market has not responded to the soft Chinese data over the weekend.  Chinese equities began softer but recovered fully and the Shanghai Composite closed on its highs.  The MSCI Asia Pacific Index is snapping a two-day losing streak with a 0.5% gain.

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  • Dollar resilience will be tested this week.

    Searching for Dollar-strength Follow Through

    The key issue facing the foreign exchange market is whether the modicum of strength the US dollar demonstrated last week is the beginning of a sustainable move.  It is possible that the market is again at a juncture in which the price action will drive the narrative rather than the other way around.  A move above JPY108 and a decline in the euro below $1.1350 signal a start to a broader dollar recovery that may have begun last week with impressive gains against the dollar-bloc.

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  • The dollar appears to have bottomed against the dollar-bloc.

    Is This What a Dollar Bottom Looks Like?

    The US dollar rose against all the major currencies last week. The importance of the price action does not lie with the magnitude or the breadth of the advance. Instead, the two takeaway technical observations are 1) the seemingly one-way market for euro and yen ended and 2) the dollar-bloc currencies appear to have put in at least a medium-term top.

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  • The dollar firms on an event and data heavy Thursday.

    A Busy End of the Week Leads with a Firmer Dollar

    The US dollar is firm, near the best levels of the week against the euro, yen, and sterling. However, against the dollar-bloc and several actively traded emerging market currencies, including the Turkish lira and South African rand, the greenback has given back some of yesterday's gains. 

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  • Was yesterday's primary result meaningful for the dollar?

    Was Indiana Good for the Dollar?

    Has the dollar turned now that Cruz dropped out of the Republican primary and Trump has secured the nomination?  The greenback has extended yesterday's reversal higher. The euro had briefly poked through $1.16 and closed on its lows a little below $1.15. Sterling peaked above near $1.4770 and finished near$1.4535 for a potential key reversal.  Despite weakness in US stocks and a sharp drop in US yields, two usual props for the yen, the dollar recovered from JPY105.50 to over JPY106.50.

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  • The dollar's slide against the euro and pound continues.

    That European Vacation is Getting Expensive

    The US dollar's downtrend is extending.  The euro traded above $1.16 for the first time since last August. With Japanese markets closed for the second half of the Golden Week holidays, perhaps participants felt less hampered by the risk of intervention and pushed the dollar to almost JPY105.50.  Despite an unexpectedly large fall in the UK's manufacturing PMI (49.2 from 50.7), sterling has pushed to its highest level in four months (~$1.4770).

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  • There is still so much going on around the Fed's holding pattern.

    Where to Turn Your Attention with the Fed on Hold?

    The die is cast.  The Federal Reserve is on an extended pause after the rate hike last December. The market remains convinced that the risk of a June hike is negligible (~ less than 12% chance).  The ECB has yet to implement the TLTRO and corporate bond purchase initiatives that were announced in March.  The impact of its programs has to be monitored before being evaluated.  It is unreasonable to expect any new initiative in the coming months. 

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