Playlist: USD

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From the Floor: USD faltering as liquidity returns
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Video / Friday at 8:39 GMT

From the Floor: Dollar downed by CNY strength – #SaxoStrats

  • CNY is aggressively stronger and driving USD weakness
  • We're seeing a decoupling of rates with yields strong across the curve
  • We're opening up for 3% on the US 10-yr yield
  • Busy week ahead: Trump at Davos, BoJ, ECB meeting, Q4 GDP
  • Equities are holding onto gains
  • Earnings season is looking good with top line and bottom line gains
  • Still expecting a correction towards the end of Q1
  • Crude oil price is lower despite stock declines
  • We saw a strong rise in US shale oil production

By Clare MacCarthy

Dollar weakness and the Chinese yuan strength that is driving it is the big story of the day as core bonds slump and US Treasury yields pitch higher. 

"China is allowing the yuan to strengthen dramatically and clearly, we're seeing a decoupling of rates with yields higher all across the curve," says John J Hardy, Saxo's head of FX strategy. The reasoning behind the yuan appreciation isn't quite so apparent but may be related to bond repositioning on the part of China. But the way the trend currently stands, the US 10-year yield may soon hit 3%.

US 10-year benchmark: Big level at 2.64% and even bigger one near 3%
 Source: Bloomberg

Equities, meanwhile, are "holding onto gains after some mildly positive trading in Asia," says Peter Garnry, Saxo's head of equity strategy. "Earnings are looking good with gains on the top line and the bottom line," he says, adding that the next two weeks will see tech sector reports and if these prove strong, then we can expect some short-term advances for equities. However, Garnry retains his view that an equity correction will arrive in the early part of this year as economic indicators head south.

Finally today, crude oil has retreated despite the bullish note sounded by continued US stock declines. Ole Hansen, Saxo's head of commodity strategy, explains that the stockpile reductions are being offset by rising US shale output and Opec upgrading non-Opec supply for 2018. "Multiple price upgrades from banks highlights the risk of the market having become one-sided," he concludes.

 The strong yuan and consequently weak dollar is the story of the day (and possibly next week too). 
Pic: Shutterstock

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