Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 20 March 2017 at 8:00 GMT

Morning Markets: Dollar losing streak extends

Former managing editor, / Saxo Bank



  • Germany: PPI (published)
  • Eurozone: Labour Cost Index (1000 GMT)
  • US: Chicago Fed National Activity Index (1230 GMT) 

The slide in dollar set in motion by the expected US Federal Reserve decision to raise interest rates last week has continued unabated propelling USDJPY to below the 113.0 handle. EURUSD was also looking to take advantage of the dollar malaise while GBPUSD was bouncing in and around the 1.24 zone in the hour before the European open.

While the Fed's move on rates was priced in, market expectations for a more hawkish stance may be behind the torpor gripping dollar. Of course, that awkward press conference between US president Donald Trump and German chancellor Angela Merkel at the weekend may not have helped as a distinct lack of common ground between perhaps the two foremost leaders of the western world from immigration to trade was unveiled in full glare.

It is 1-0 for the Trump administration nevertheless after the US managed to arm wrestle the G20 into a softening of its resistance to protectionism at the weekend and raised the fear that the free trade agenda is slipping down the pecking order.

Trump has already served notice on Merkel dismissing her as a great leader of the past but markets have taken the latest diplomatic shakeup of the status quo poorly with the S&P 500 and Dow reversing. It was a mixed picture in Asia meanwhile with the Hang Seng hitting its highest since August 2015 and the Shanghai Composite Index also in positive territory, but elsewhere, the brakes were on as the Australia ASX slipped 0.4% and Singapore fell 0.5%.

WTI's recent slide to below $50/barrel could well extend after the Baker Hughes rig report showed a rise in oil producing wells online in the US for the ninth consecutive week.

Opec's well-documented 'supply-and-rule' strategy has now been utterly undermined — a fact implicit in the oil production cut deal struck on November 30 — and with the break-even figure on US shale production down to about $30/b from $50/b, the discipline that has so far held the Opec cut deal with non-Opec producers like Russia together could come increasingly under pressure if the slide continues. 

A catch-22 clearly of Opec's own making, it will require a trick worthy of Houdini to unlock this one.

Market signals

Asian session

  • G20 finance ministers dropped their post-meeting free trade pledge under US pressure
  • The backflip could mark the start of a global slide into GDP growth-stifling protectionism
  • Oil remained under pressure amid rising US drilling activity and steady Opec supplies
  • Beijing will import more Saudi crude as part of greater Saudi-Sino cooperation
  • China's holdings of US Treasuries fell in January
  • The Shanghai Composite was up 0.12% to 3,241.41 at 0640 GMT
  • The Tokyo Stock Exchange was closed for a public holiday
  • Hong Kong's Hang Seng was up 0.62% to 24,460.59 at 0640 GMT
  • The founder of Korea's Lotte Group and three family members are on trial for corruption
  • Korea's Kospi Composite was down 0.47% to 2154.30 at 0622 GMT
  • Australia's S&P/ASX200 closed down 0.36% at 5,778.90, in a broad-based selloff
  • Firmer iron ore prices and futures helped support listed Australian miners
  • Deutsche Bank is raising €8bn through selling shares at a 35% discount

Forex ahead

  • The US dollar lost ground against the yen; it was worth ¥112.6150 at 0642 GMT
  • AUD made gains and broke through 0.77; it was worth 0.7727 at 0642 GMT
  • GBP strength could open up route to 1.27 against USD

From the Floor

Dollar weakness. "The dollar is getting into some pivotal areas like 1.08 on EURUSD," says Hardy.

Oil's slide. "A new cycle could be emerging with a big new short in the market," says Hansen.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

If today’s Chicago Fed National Activity update is much weaker than expected, the Fed’s relatively upbeat outlook will look dated, even though it’s less than a week old, says James Picerno.

Rate query
The month of May is being dismissed for the next rate rise while a key focus this week is on which central bank will follow the Fed's move, asks Kay Van-Petersen in this week's Macro Monday.

Two-way USD action
This US dollar's retreat over the past week has culled the dollar bull herd, leaving room for more two-way price action in the days ahead, says Michael O'Neill.

Making progress
US Secretary of State Rex Tillerson met with Chinese President Xi Jinping on Sunday, with both sides appearing to have made some progress on issues,
write Saxo's Singapore trading team.

French election rally

 With the Dutch election out of the way, attention swings increasingly to the French presidential race, with the first-round ballot just over a month away. Photo: Shutterstock 

Morning Markets goes out on the TradingFloor platform at 0800 GMT, Monday to Friday.
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