Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Dollar Rides High

By Marc ChandlerForexAug 20, 2021 06:40AM ET
www.investing.com/analysis/dollar-rides-high-200599477
Dollar Rides High
By Marc Chandler   |  Aug 20, 2021 06:40AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Even shallow dollar dips appear to have been bought. The Federal Reserve's confirmation that it most likely will begin tapering later this year has pushed the greenback further in the direction it was going. The contagion coupled with purposeful efforts to curb steel output in China saw industrial commodities slide. The currencies hardest hit were those whose central banks seemed to be ahead of the Fed, including the dollar bloc and Norwegian krone. US equities recovered smartly yesterday from gap lower openings but failed to help stabilize the Asia Pacific and European shares today. Hong Kong, China, and South Korea led today's retreat, and the MSCI Asia Pacific Index fell for the fourth week in the past five. Europe's Dow Jones STOXXX 600 is posting its first back-to-back daily loss in nearly a month, and it will record its first weekly loss in five weeks. US futures are under pressure. Benchmark 10-year yields are soft. The US yield is hovering around 1.23%, off about three basis points for the week. European core yields are off nearly as much while peripheral yields fell by less. The dollar remains king, though the yen and Swiss franc continue to show some resilience as funding currencies strengthen as the other assets weaken. Canada and Norway lead today's move. On the week, the dollar-bloc currencies and the Norwegian krone have depreciated by more than 3% against the greenback. The JP Morgan Emerging Market Currency Index is off for the fifth consecutive session. Its loss of 1.4% for the week ahead of the Latam open would be the largest drop in two months. Gold is little changed on the day and week, while crude oil is extending its fall for the seventh consecutive session. September WTI is near $63.50, off a little more than 7% for the week. Recall it settled last month slightly below $74. China's iron ore contract continued its plunge, off 8% this week to bring the five-week slide to around 25%. Copper is trying to snap a four-day slide, though, near $406, it is off over 7% for the week. The CRB Index also has a four-day decline in tow coming into today, nursing a 3.6% decline, for the week, which, if sustained, would be the largest since last October.

Asia Pacific

Despite a central bank balance sheet that has swelled to more than 100% of GDP, central government gross debt of more than 200% of GDP, Japan continues to wrestle with deflation. The June head and core CPI readings of 0.2% were previously revised to -0.5%, each reflecting a technical adjustment to the basket. Today's July report showed the headline rate at -0.3% and the core rate at 0.2%. When energy is excluded from the core measure, which drops fresh food prices, deflation pressures moderated to -0.6% from the decade-low -0.9% in June. Separately, we note that Japan's vaccination efforts have stepped up after a frustratingly slow process, after a frustratingly slow process, and more than 40% have been fully inoculated. Prime Minister Suga wants to surpass the 50% mark by mid-September. Astonishingly, Japan could pass the US late next month or early October.

China kept its Loan Prime Rate steady as it has not activated this policy lever. Still, many expect another cut in reserve requirements in Q4. Beijing's efforts to rein in domestic forces have seen new rules about handling personal user data. The National People's Congress deferred its vote to impose anti-sanctions law on Hong Kong.

The dollar is trading quietly against the yen and has been confined to about 15 ticks on either side of the roughly JPY109.75 settlement. It is trading comfortably inside yesterday's range. The week that has seen the US dollar trade broadly higher is practically flat against the yen. While the virus has spread in Japan, Australia, and New Zealand, the latter two currencies have been punished. Both are off 0.3%-0.4% today to bring the cumulative loss to over 3% for the week. The Aussie has been sold to almost $0.7100 today. The next important technical targets are in the $0.7000-$0.7050 area. The New Zealand dollar has approached $0.6800  today after finishing last week near $0.7040. The next significant target is around $0.6700. Today, the greenback edged higher against the Chinese yuan and is flirting with the upper end of its two-month range near CNY6.50. Above CNY6.5125, last month's spiked high, there is little of importance until CNY6.55. The PBOC set the dollar's reference rate at CNY6.4984 today, a smidgeon above the CNY6.4980 median estimate in Bloomberg's survey.

Europe

UK July retail sales were sorely disappointing. As economists expected, rather than rising by 0.2%, they tumbled by 2.5%, the biggest decline since January. And, adding insult to injury, the June series was revised lower to 0.2% from 0.5%. Of course, such a large miss is looked at with jaundiced eyes. Some suggest that the end of some social restrictions allowed the consumption of services that are not picked up in retail sales and blame the inclement weather for the depressed high street sales. That said, internet retail sales fell by about 0.5%, the fourth consecutive month, they have slowed and are off about 15% over the period. Others tried to cushion the sting by looking forward to improved sales this month as employees may have updated their wardrobe ahead of ostensibly returning to the office next month.

The euro made a marginal new low for the year against the Swiss franc yesterday, and as European markets opened,  it began recovering. The euro reached almost CHF1.0740 in North America. In fact, the recovery was nearly complete by the time that US equity markets opened and before they managed to fill their opening gaps. The euro was sold back to CHF1.07 today in Asia but again bounced in early European activity. It would not be surprising to learn that the Swiss National Bank had a hand in it. Recall that the cross drifting in March and April, the sight deposits slipped, but as pressure on the cross mounted and sight deposits rose every week in May and June. The euro fell by 2% in July, the biggest monthly decline since May 2019, but sight deposits fell slightly. In the first two weeks in August, Swiss sight deposits have jumped by the most since May, and our guess is that when this week's series is reported on Monday, another strong increase will be shown. The six-year lows were set in April and May 2020 slightly above CHF1.05. Also, when the SNB intervenes by buying euros, it later is understood to sell some of the euros for dollars.

The euro is barely holding above yesterday's low, near $1.1665. It is shaping up to be the first session since November 2 that it has not traded above $1.17. Large option expirations there yesterday made for a bit of a battle over it, but today, it has not been above $1.1690. There are another set of options for around 880 mln euros at $1.17 that will be cut today. Although the pace of the euro's decline is surprising, the next key chart points are clearer:  $1.1650 and then $1.1600. Sterling has approached $1.3600. Last month, on an intraday basis, it reached a low near $1.3570. The year's low was recorded on January 11 near $1.3450. Initial resistance is now seen around $1.3650.

America

The US economic diary is light today. Next week's high-frequency data include the preliminary August PMI, new and existing home sales, another look at Q2 GDP, and an initial estimate of July durable goods orders, and July personal income and consumption figures. The FOMC minutes showing that most Fed officials see tapering likely later this year may steal a little thunder from Fed Chair Powell's virtual presentation there. Like those private-sector economists use, the Fed's models may show that non-farm payrolls may be rising by around 750k this month. 

Canada reported June retail sales data today. A strong recovery is expected after sales fell by 2.1% in May. However, it may not offer the Canadian dollar much help, given the deterioration of risk sentiment. We usually identify three drivers for the exchange rate: risk appetites, for which we use the S&P 500 as a proxy, commodity prices, for which we use oil as a proxy, and interest rate differentials, and where we rely on the two-year differentials. Equities and oil have headed south, and the two-year differential is virtually flat this week. This week, the Canadian dollar's nearly 3.2% loss will be the largest weekly loss since March 2020 if sustained.

Mexico and Brazil's economic calendars are quiet ahead of the weekend. In Mexico, President AMLO insists on using the $12 bln of the IMF's SDR allotment to pay down the country's debt. Central bank Governor Dia de Leon, whose term ends and will be replaced by the previous finance minister early next year, is balking at AMLO's proposal. He insists that the government much buy the SDRs (reserves) from the central bank. Meanwhile, the income tax reform bill is in Brazil is stalling. The lower house is expected to vote on it next month, but many lawmakers reportedly are seeking changes given the strong opposition. Many fear that the election, which is still 13-months away, will also limit the legislative initiatives going forward.

The Canadian dollar is falling for the fifth consecutive session. The greenback finished last week near CAD1.2515 and has approached CAD1.2950 today. This puts the US dollar at slightly more than three standard deviations from the 20-day moving average. The Bollinger Band is set at two standard deviations, illustrating the magnitude of the overshoot. Today's advance has lifted the US dollar to its best level of the year. The next technical objective is the CAD1.3000-CAD1.3025 area, which houses the (38.2%) retracement of the US dollar's sell-off since the pandemic high in March 2020 near CAD1.4670. The Mexican peso is also off for its fifth consecutive session. The dollar has pushed above MXN20.27 after settling last week slightly below MXN19.88. The next important chart point is seen closer to MXN20.35 and then MXN20.50. We had suggested the dollar could head toward BRKL5.50, and it seems to still be a reasonable near-term target.

Dollar Rides High
 

Related Articles

Kenny Fisher
Euro Dips As Business Confidence Slows By Kenny Fisher - Oct 25, 2021 1

The euro has started the new trading week with slight losses. At time of writing, EUR/USD is trading at 1.1623, down 0.18% on the day.German business confidence slowsThe Ifo German...

Dollar Rides High

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email