Dollar Power – Buck Rallies for 5th Day in a Row

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Market Drivers July 13, 2018
China hits record Trade surplus with US
Trump roils UK now
Nikkei 1.85% Dax 0.54%
Oil $7o/bbl
Gold $1241/oz.
Bitcoin $6250

Europe and Asia:
No Data

North America:
USD U of Michigan 9:50

The dollar rose for the fifth straight day in Asian and early European trade as Donald Trump’s visit to UK created fresh turmoil in cable.

In an interview with Murdoch-owned Sun, Mr. Trump stated that there would be no US-UK trade deal under the current Brexit proposal of PM May and went on to state that Boris Johnson would make a good PM. GBPUSD drifted lower on those remarks during Asian session trade but really accelerated its in Europe as it drifted towards the 1.3100 barrier.

As we noted yesterday, “With Europe pressured by Trump, UK pressured by Brexit and commodity dollars pressured by trade war fears, the greenback is rising by default for now. “ Mr. Trump’s “chaos agent” tour of Europe where he has managed to alienate every single US ally appears to have driven investors into the buck, as markets fear that his isolationist policies will damage global trade with export-dependent Europe and Asia far more vulnerable to that dynamic.

Speaking of trade, China reported its largest monthly surplus with US ever with the number coming in at 41.6B versus 27,7 eyed, but the large gain was mainly due to a sharp decline in imports which only rose 6% versus 12% eyed. So far, Mr. Trump has said nothing about the figures but he chooses to use that data to enact his proposed $200B worth of tariffs, the market could once again see risk-off flows.

In the meantime, the selloff in the majors is now reaching key support levels. GBPUSD is coming near the 1.3000 -1.3100 corridor while euro is approaching the key support at 1.1500-1.1600 area. As we’ve stated before the move into the dollar has been driven by political rather than economic factors. In fact the US curve continues to flatten and and perhaps invert as the fixed income market is anticipating a slowdown. Therefore it’s unclear if the dollar move could extend much beyond these levels, but with key technicals barriers within reach dollar bulls are likely to press their hand for now and 1.1600 in the EURUSD, as well as 1.3100 in GBPUSD, could fall as the day progresses.

Boris Schlossberg
Managing Director

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