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Article / 17 October 2016 at 7:00 GMT

Morning Markets: EURUSD at sub-1.10 as dollar flexes

Former managing editor, / Saxo Bank



  • US: NY Fed Manufacturing Index (1230 GMT)
  • US: Industrial Production (1315 GMT)

The dollar has been flexing its muscles through the Asian session after Federal Reserve chair Janet Yellen hinted that the US growth could be allowed to run hot, effectively a dovish tilt that could see rates stay lower for longer.

That has immediately cast some doubt over when the Fed will raise interest rates and, while December remains on the table given supportive noises from board members William Dudley and Eric Rosengreen over the weekend, it triggered a selloff in longer-dated US Treasuries and helped send the Bloomberg Dollar Spot Index towards a seven-month high.

EURUSD hit the skids to head to sub-1.10 levels and threaten to break out of the torpor that has gripped the pair since the UK decided to leave the European Union on June 23. USDCNH was also at a fresh six-year high well above the usual 6.700 line in the sand at which point Beijing typically intervenes.

GBPUSD was also bubbling along at just above 1.2150 in the hour before the European session and sterling bulls will have noted with some concern that Britain has dropped to seventh in the list of most desirable locations for mergers and acquisitions having never been out of the top five previously. USDJPY was well above the 104.0 handle.

While the Nikkei climbed through the Asian session on the back of the yen's weakening, the Hang Seng's glorious run through Q3 is starting to look like a dim and distant memory and the Shanghai Composite Index was once again heading south towards the 3,000 mark. China GDP data due Wednesday will determine the fate of the latter in the near term.

Elsewhere, gold was holding steady at just above $1,350/oz and oil was once again on the retreat after rig data out of the US showed an increase in the number coming back online.

But it is Yellen's shift back towards full-on-dove status that will no doubt be occupying minds in Europe today. While it will have been met with some consternation within the august walls of the Fed after last Wednesday's minutes showed a split on when to hike rates it shows she is capable of throwing the odd stink bomb when she feels the need to.

The chances of a hike in December currently stand at 65%.     

Market signals

Asian session

  • Asian markets were mixed, focused on Yellen's speech and Chinese data due this week 
  • The ASX200 fell 0.8% to 5,389 after casino operator Crown fell 14%
  • 18 of Crown's employees in China were reportedly arrested
  • Gaming shares took a hit across the region
  • Hong Kong's Hang Seng index was down 0.42%
  • The Nikkei 225 was up 0.27%, getting a boost from a relatively weaker yen 

Forex ahead

  • Relative strength in the US dollar is keeping most other currency majors lower
  • In contrast, AUD was as high as 0.7632, 1.7% above last Thursday's low of 0.7504
  • USDJPY was as high as 104.37, compared with levels below 103.80 last week

From the Floor

Nikkei breakout? ”We like Japanese exporters,” says Garnry

Hiking season. “The odds of a December Fed rate rise now sit at 65%,” says Boye

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

In opinion

The crowd’s looking for a kinder, gentler profile in today’s hard data on US industrial activity, writes James Picerno.

Casino losses
The ASX200 was hit early by a plunge in casino operator Crown, writes the team at Saxo Capital Markets (Australia).

Mixed markets
Asia markets opened mixed this morning as traders digested Fed Chair Janet Yellen's speech and awaited upcoming Chinese data, says Saxo's Singapore trading team.

Let it fall
Steen Jakobsen in this video explains why he sees the possibility of a dip in USD.  


Dollar strength is edging it onwards against its peers. Photo: iStock

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