Dollar Power Continues

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Market Drivers November 15, 2016
UK Labor data in line
EURUSD tests 1.0700
Nikkei 1.10% Dax -0.26%
Oil $45/bbl
Gold $1227/oz.

Europe and Asia:
AUD Wage Price Index 0.4% vs. 0.5%
GBP UK Unemployment 4.8% vs. 4.9%
GBP Average Hourly Earnings 2.3% as forecast
GBP Claimant Count 9.8K vs. 1.9K

North America:
USD PPI 8:30
CAD Manufacturing Sales 8:30

Dollar power continued in Asian and early European trade today with EURUSD testing the 1.0700 figure while USDJPY breached the 109.50 level. The euro has not been at these levels since the start of the year while USDJPY hasn’t been this high since the summer.

There was no fresh news to drive the buying, but dollar strength continues to be supported by higher US yields. The benchmark ten year is at 2.25% while the 30 year is now within a few basis points of the psychologically important 3% level. Unless yields recede from the current levels, dollar strength is likely to continue.

On the eco front data out of Australia showed that the wage price index rose at 0.4% vs. 0.5% eyed while the yearly data rose only 1.9%. This was the weakest reading on record and suggests that consumer demand may be tempered. With wages and inflation muted, speculation is starting to heat up that the RBA may need to ease in near future causing Aussie to sell-off for most of the night as the unit traded back to .7500 figure.

Meanwhile in UK the labor data was generally robust with average wages coming at 2.4% as expected while unemployment hit 4.8% – the lowest level since 2005. The only fly in the ointment was the rise in claimant count to 9.8K from 1.9K eyed, but the unemployment level remain low by historical standards and suggest that UK growth should proceed unabated for the time being. Cable was a bit lower on broad dollar buying, but still showed relative strength against the other majors.

In North America the only release of note is the PPI data due 1330 GMT. The market anticipates a reading of 0.3% matching the month prior. Any uptick in wholesale inflation would only push the dollar higher as expectations of Fed rate hike in December would then approach 100% and USDJPY could test the key 110.00 level as the day unfolds, especially if the 30 year crosses and holds the 3% level.

Boris Schlossberg
Managing Director

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