A Yellow Light of Caution for Dollar Bulls?

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Market Drivers November 10, 2017
Markets Tread water
Dollar can’t rally despite a rise in yields
Nikkei -1.19% Dax -0.14%
Oil $56/bbl
Gold $1284/oz.

Europe and Asia:
UK IP 2.5% vs. 1.9%

North America:
USD U of Michigan 10:00

The markets were extraordinarily quiet on the final trading day of the week with most of major pairs trapped in 20 pip ranges for most of Asian and early European trade.

The dollar couldn’t muster a rally despite a healthy rally in US yields which rose more than 3 basis points in overnight trade. The lackluster performance of the buck suggests that markets may be worried more about political factors rather than economic drivers at the moment. The GOP tax bill, with its two competing versions from House and the Senate and a variety of proposals that have alienated key constituent groups, is now seen as a drag rather than a support for the dollar.

The jumbled process has investors losing faith in the policy proposal with fears by many market participants that it may turn out to be another legislative debacle like the healthcare reform.

For now, the market remains essentially at a standstill. With no major economic data on the docket except U of M consumer sentiment, the flows in North America will be driven by headlines from DC and any further movements in US yields. For now, the massive disconnect between rising yields and the poor performance of USDJPY should raise flags of caution for dollar bulls and the pair could begin to drift towards a test of the 113.00 figure if markets begin to lose faith in US tax reform.

Boris Schlossberg
Managing Director

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