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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 / 18 November 2016 at 8:00 GMT

Morning Markets: Sizzling USD hammers EUR, CNH and JPY

FX rates

 

Watchlist

  • European Central Bank president Mario Draghi speaks (0800 GMT)
  • Bank of England’s Ben Broadbent speaks (0910 GMT)
  • Federal Reserve James Bullard speaks (1030 GMT)
  • Deutsche Bundesbank Jens Weidmann speaks (1030 GMT)
  • Federal Reserve's Esther George speaks (1430 GMT)
  • Federal Reserve's William Dudley speaks (1430 GMT)
  • Federal Reserve's Robert Kaplan speaks (1830 GMT)

The US dollar is on a mighty roll, no question about that, and its most prominent victim this morning is the European single currency which has has dipped beneath $1.06 for the first time since December last year. While it might be premature to talk about parity, this latest dip means the euro has weakened against the dollar for ten straight sessions now, its longest losing streak since its introduction as an accounting currency back in 1999. And when will this greenback juggernaut roll to a halt? Nobody knows, of course, but do note that strategists at UK lender Barclays have predicted that EURUSD will slip below parity at some point in 2017.


China's renminbi is hurting too, and has chalked up another discomfiting record – overnight, the Peoples Bank of China pegged the trading band for the onshore renminbi lower for an eleventh consecutive session. 


On the other side of the coin, the dollar's broad-based strength is fuelling equity gains and major Asian indices (the Shanghai Composite excepted) notched up decent advances in overnight trade as investors indulged in a spot of pre-Christmas bargain hunting. This bullish behaviour will likely extend into Europe today, at least for the beginning of the session.


Elsewhere, Fed chief Janet Yellen's testimony to Congress left market watchers virtually certain that the US central bank will hike rates next month. As for the outlook for today,  get ready to be swamped by a monetary policy talkfest, with several central bankers due to speak on both sides of the Atlantic. The European Central Bank's Mario Draghi's comments will be the most carefully scrutinised.

Market signals

Asian session

  • Japanese Prime Minister Shinzo Abe met with president elect Trump on Thursday
  • Abe fears a wave of US protectionism that would cripple Japan's export-driven economy
  • While Abe said Trump is a "leader we can trust", he did not give details of his talks
  • FOMC chair Janet Yellen says the Fed could rates "relatively soon"
  • Markets priced in a 98% chance of a December rate rise following Yellen's comments
  • The rising US dollar boosted investor sentiment and equities in Japan
  • Japan's Nikkei 225 made solid gains; it closed up 0.59% at 17,967.41
  • Chinese investors will invest £1.7bn in an Asian financial hub in London: Bloomberg
  • The Shanghai Composite lost ground; it closed down 0.49% at 3,192.86
  • India's S&P BSE Sensex edged higher; it was up 0.26% to 26,294.89 at 0709 GMT
  • The assistant governor of the Malaysian central bank admits it is intervening in FX markets
  • Australia's benchmark S&P/ASX200 closed up 0.31% at 5,355.00

Forex ahead

  • The US dollar climbed even higher against the yen; it was worth ¥110.6940 at 0634 GMT
  • Janet Yellen's rate comments hurt the Australian dollar, which hit its lowest point since June
  • The flagging Aussie dollar was worth just 0.7397 at 0634 GMT
  • Yellen's comments hit emerging currencies hard, including the Malaysian ringgit
  • The US dollar was worth 4.4052 MYR at 0542 GMT

From the Floor


Boom goes dollar. “This is looking like a runaway train,” says Hardy.


Ever on. “The US 10-year Treasuries yield has hit 2.33% and 2.5% looks likely,” says Boye.


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

In opinion

1...2...3
There are plenty of central bank talking heads today, and European Central Bank president Mario Draghi’s speech should be the most important one, says Juhani Huopainen


US dollar boost
The US inflation update and comments from FOMC chair Janet Yellen have pushed bond yields higher, further widening interest rate differentials in favour of the US dollar, says Max McKegg.


Strong numbers
It's all about the rise of the USD on the back of strong data which gives rise to next question, which many believe Janet Yellen will answer in the affirmative, writes Michael O'Neill.

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Japanese investors welcome the weaker yen, but many Japanese worry about what a Trump presidency will mean for regional security and their export-driven economy. Photo: iStock

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