Dollar Crushes All Except Yen

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Market Drivers January 9, 2018
BOJ tapers JGBs sending USDJPY below 113.00
US yields rise above 2.50%
Nikkei 0.57% Dax +0.21%
Oil $61/bbl
Gold $1314/oz.
Bitcoin $14800

Europe and Asia:
EUR EZ GE Trade 22B vs. 20B
EUR EU Unemployment 8.7%

North America:
No data

The dollar continued its winning ways for the second day in a row rising against all the major trading partners except the yen.

News out Japan that the BOJ will upgrade the country’s GDP outlook and will taper its JGB buying helped send USDJPY to a low of 112.50 in Asian morning trade, but rising US yields stemmed the decline and the pair settled down around 112.80 by morning London dealing.

With US 10 year yields crossing the key 2.5% level, the dollar rally continued into the European open with EURUSD sliding towards the 1.1900 figure. The sell-off in euro came despite strong economic data from the region including better than expected Trade data which printed at 22B vs. 20B eyed and an unemployment rate that hit a 9 year low of 8.7%.

However, as we noted yesterday, the euro was grossly overbought with CME positioning showing a new long swing in specs to over 100K – a level at which euro tended to correct in the past. The depth of the correction remains to be seen as dollar strength is now driven solely by speculation that US yields will begin to rise in response to faster growth. That assumption remains very much under review for now, with US Retail Sales data likely the key fundamental catalyst this week.

If US consumption improves materially, the rally in the dollar will accelerate as the US growth thesis pick up steam, but if Friday’s data disappoints as it has over the past several months, yields could fall right back below 2.50% and drag the buck down with them.

For now, the dollar bulls will try to run the 1.1900 barriers in euro and 1.3500 figure in cable, but with no US data on the docket, today momentum may stall especially if US yields can’t hold the new breakout levels.

Boris Schlossberg
Managing Director

One thought on “Dollar Crushes All Except Yen”

  1. EU gov debt to GDP is ca. 100% in total. Much worse in Southern EU!
    US has ca. 70% debt ratio to GDP.
    EM has staggering amounts of debt in USD!
    Interest rates are unsustainably and artificially held down by central banks’ policies, not letting free market forces set the price on capital and credits. Most extreme is the ECB. For how long can it still be cheaper to borrow capital in Portugal, Spain, Italy and even in Greece compared to USA?
    Rates are now on the rise and the punchbowl (QE) is finally being emptied. Do you really see that the Euro will continue to rally against the USD?
    Look out for the Sovereign Debt Crisis evolving!

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