Market Drivers January 28, 2019
Dollar Selling Persists
AU closed for Australia Day
Nikkei -0.64% Dax n/a
Europe and Asia:
It’s been a very quiet start of trade in FX this week, with Australia out on holiday and the eco calendar barren in both Europe and North America, but the dollar remained weak, extending its losses across the board in Asian and early European dealing.
Although the US government shutdown is over, the sense of relief engendered by the deal was fleeting at best as investors remain wary of threats by President Trump to shut the government down once again if his demand for funds for the wall is not met by the deadline of the current deal.
The longest government shutdown in US history did far greater damage than the nominal $6 Billion cost estimate by economists. The standoff nearly brought US civil aviation to a halt, will create massive delays to raise capital in US financial markets and most importantly created a crisis mentality amongst both consumers and businesses that may have long-lasting negative impact on sentiment especially if US finds itself in the same situation a month from now.
The pall of uncertainty is not lost on the markets which continue to sell the greenback on the assumption that the Fed will remain stationary for the foreseeable future until investor sentiment improves. This week’s FOMC meeting is not expected to make any policy changes, but as our colleague, Kathy Lien wrote on Friday, “This means even if the policy remains unchanged, the market will get an updated assessment on the economy but don’t expect the Fed’s view to change. Many economic reports have been delayed and the ones that have been released show the economy is weakening. Since December, consumer sentiment measures declined, inflation is lower and economic activity is slower. The labor market remains the primary source of strength but with hundreds of thousands of furloughed workers, the real numbers this month (federal + state) are probably much worse. We expect Powell to maintain a cautious tone that will hurt more than help USDJPY.”
With USDJPY now below 109.50, the natural pull of the 109.00 level will come into play later today, especially if US equity markets turn south. Meanwhile, both the euro and the antipodeans continue to hold bid not necessarily for any intrinsic reasons, but simply as an anti-dollar bet that shows no signs of turning with EURUSD now looking to run the 1,1450 level and Aussie slowly climbing to towards .7250 as rancor in DC continues to dog the greenback.