US Growth-Where? USDJPY Dips Below 106.00

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Market Drivers March 15, 2018
USDJPY Below 106.00
Russia – UK Feud intensifies
Nikkei 0.12% Dax 0.65%
Oil $61/bbl
Gold $1322/oz.
Bitcoin $8200

Europe and Asia:
CHF – SNB Stays on Hold

North America:
8:30 USD Weekly Jobless
8:30 Philly Fed

It’s been another quiet listless night of trade in the FX market with most of the majors contained to 30 point ranges, but the tone of trade was decidedly dominated by risk aversion flows sending USDJPY below the 106.00 in the Asian session and it stayed there most of the night.

There was a myriad of reasons for dollar weakness, but perhaps the best explanation was the simplest. US growth in Q1 continues to disappoint and is considerably below expectations of 3%+ trajectory that many analysts had expected. Yesterday’s Retail Sales contracted for the third month in a row – hardly a sign of confidence from the US consumer who supposedly was pumped full of stimulus from the tax cut.

Low unemployment and tax stimulus are failing miserably at spurring the US economy beyond its slow and steady 2-2.5% rate and fixed income markets and FX are starting to take notice. The US 10 year yield is now almost back to 2.8% – trading at 2.819% in morning London dealing. It has lost 15 basis points since topping out a few weeks ago and is a clear sign that the fixed income market does not anticipate even a 3 rate hike cycle from the Fed this year.

Indeed, the yield on the 10 year remains the best barometer of true market conditions of the US economy, and while low yields may be a boon to US equities irrespective of profit growth – they are the death knell for dollar bulls, who had anticipated much stronger US performance than we have seen so far.

USDJPY remains under pressure and although there is little additional economic data on the calendar this week, the pair could move lower and retest the recent swing lows near 105.00 if US yields continue to slide.

Boris Schlossberg
Managing Director

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