Irma Relief Forms a Dollar Rally

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Market Drivers September 11, 2017
Irma impact not as severe
USD recovers
Nikkei 1.43% Dax 0.82%
Oil $47/bbl
Gold $1347/oz.

Europe and Asia:
CNY CPI 1.8% vs. 1.6%

North America:
No Data

Markets breathed as sigh of relief on the first trading day of the week as the worst fears over the weekend did not come to pass. North Korea did not launch yet another nuclear over the anniversary of the nation on September 9th, while the damage from Hurricane Irma while significant did not appear to be catastrophic.

The weekend was spent watching weather reporters get pelted by rain and Irma’s sheer size and fury proved to be impressive, but the hurricane missed the biggest population centers in Florida, sparing Miami a direct hit and this saving untold billions in damages. No doubt the final toll for Irma and Harvey will be significant, but not catastrophic as feared and with the dollar priced for Armageddon prior to the weekend, the buck naturally snapped back in Asia open with USDJPY gaping above the 108.00 figure and so far refusing to fill that gap.

With no eco data on the calendar today the market is likely to trade on short covering flows alone and if US yields firm as the day goes by, USDJPY could squeeze through the 109.00 figure within the next 24 hours. The longer term picture still remains murky with chances of any rate hike by December appearing remote. The key to dollar strength will be the speed of recovery in both Texas and Florida much of which will depend on the speed of fiscal stimulus to the region. For now, the 110.00 level still remains the key resistance point in the pair and as long as USDJPY stays below that figure the pair remains in a downtrend.

Meanwhile, the EURUSD refuses to buckle just yet as 1.2000 support proves to be a very sticky area for now. Even jawboning by ECB’s Couere who tonight pretty much threatened to keep monetary policy accommodative unless exchange rate recedes could not keep the pair down for long. The euro dipped to low of 1.1993 on comments from Mr. Couere which stated that “exogenous shocks to fx rate if persistent can lead to an unwarranted tightening of financial conditions with undesirable consequences for inflation.” But by mid morning European dealing euro was right back above the 1.2000 level as dip buyers returned. The sentiment towards euro remains too strong and only a shockingly bad data point or a surprise increase in QE from ECB could derail the move, but the pair still faces formidable resistance at 1,2100 figure and for now appears to be a tense tug of war between late shorts trying to squeeze it higher and speculative shorts trying to call the top at the 1.2000-1.2100 corridor.

Boris Schlossberg
Managing Director

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