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What’s Behind The Dollar Dumping?

ByBoris Schlossberg
Published 01/15/2018, 06:34 AM
Updated 07/09/2023, 06:31 AM

Market Drivers January 15, 2018

Europe and Asia
EUR: EZ Trade Balance 26B vs. 22B

The dollar was dumped across the board on the first trading day of the week, as the selling flows in Europe accelerated pushing GBP/USD through the 1.3800 figure and taking EUR/USD within a few pips of 1.2300.

There was no fundamental news for the move as the rally was pure momentum driven with stops triggering vicious short covering spikes in morning London dealing. After Friday’s dollar breakdown that saw both EUR/USD and GBP/USD post multi-month highs, today’s move was simply the continuation of those flows.

Although some analysts have stated that the current dollar weakness is simply the natural result of the global growth trade as relative growth rates pick up across the G-11 universe, we believe there are other factors at play. While the risk trade is undoubtedly part of the move, as witnessed by the rising prices in the commodity complex, the weakness in USD/JPY suggests there is more to dollar weakness than just the global feel-good story.

Yesterday, BOJ governor Kuroda reiterated the central bank’s commitment to QE and yet USD/JPY fell on the news, dropping to within a few pips of the 110.50 level by mid morning London trade. The weakness in the buck suggests that the move is political as well as economic as global investors grow increasingly concerned about the chaos in Washington DC.

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This week the US Congress must pass a continuing budget resolution or face the prospect of the government shutdown. Most market participants believed that Congress would reach a compromise and pass the legislation. However, after the rancor of the past few days, the risk of the government shutdown has increased and that factor could be weighing on the dollar as well.

With no data on the docket today and US capital markets closed for MLK holiday, trading may settle down as the day proceeds, but the drama in Washington will dominate the flows this week and if no compromise is reached USD/JPY could slice through the key 110.00 support as the week proceeds.

Latest comments

Nobody knows. As usual
Is money being moved out of the hyperinflated stock market?  Seems to be a parabolic up swing since Drumf took office.  I think we all know what follows this type of rise.  The question is how leveraged were the under capitalized investors.  What will be the fall out when the market does eventually decline.
Trump Trade and his #MAGA_lomania has costs, Mr Trump, the equivalent of bitcoin in politics as volatility goes. One cannot expect him but to make any potential downturn more likely with his MAGA flambouyant style. But this is hardly news, agreed.. . Potential debt trillions added and the ackwardness of the tax cuts in the face of a downturn isn´t news either. So the timing of the swing vs USD seems odd to say the least.
The same as the rest of the monkey pit, manipulation all the way!!
easy answer the treasury and regulatory arbitrage. its been on a decline since sept of 2016. the likely reason to increase gdp and make trade more competitive compared to others.
1) Raising interest rates = strong $$ 2) Raising inflation = more chance of raising interest rate by fed 3) Inflation data not yet strong and fed governors recently stated may not need as much of a raise. 4) long term 5, 10, 20 year treasuries are open market so not subject to fed 5) Even so raising yield (the equivalent of what happens to short term interest rates fed does control) = strong $$ 6) But the rest of the world buys our bonds so yields stay artificially low 7) therefore again $ is lowered in strength artificially.
That was your USD analysis? Wow Boris, you getting sloppy...
No fundamental reason?? The US Congress and President just voted to add another 1.5-2 trillion dollars to their debt. Look at the performance of the dollar in the last 40 years when a US President ********out the debt without paying for it. Reagan did it, Bush did it and now Trump. The dollar sold off in all cases.  And the sell off is just beginning.
Make the dollar *****again. Regards from DT
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