Buck Remains Unloved

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Market Drivers Mar. 31, 2016

Dollar weakness continues
UK GDP but better
Nikkei -0.71% Dax -0.69%
Oil $37/bbl
Gold $1237/oz.

Europe and Asia:
AUD AU Private Sector Credit 0.6% vs. 0.5%
EUR German Retail Sales -0.4% vs. 0.4%
EUR German Unemployment 0K vs. -6K
GBP UK GDP 0.6% vs. 0.5%
GBP UK Mortgage Approvals 73.9K vs. 73.5K

North America:
CAD GDP 8:30
USD Weekly Jobless Claims 8:30
USD Chicago PMI 9:45

The dollar continued to lose ground in Asian and early European trade today with EUR/USD hitting fresh 5 month highs despite lackluster economic data out of Germany.

The after effects of Fed’s dovish policy stance pushed the buck lower for the third day in a row as EUR/USD hit a high of 1.1370 in morning London dealing with longs now eyeing the key 1.1400 level which hasn’t been seen for nearly half a year.

The push higher occurred even as German Retail Sales and unemployment data both missed their marks with the former coming in at -0.4% versus 0.4% eyed while the later printed at 0K versus -6K forecast. Demand in Eurozone’s largest economy appears to be slowing and the recent rise in the exchange rate will no doubt make it even more difficult for the country’s key export sector to generate growth.

Nevertheless, the markets continued to ignore the fundamental picture across the Atlantic and instead remained mired in their disappointment over Fed’s lack of action on the monetary front. The euro has now added nearly 5 big figures since its reversal post ECB presser at the start of the month and is coming up against much heavier resistance in the 1.1400-1.1500 region, so forward progress may slow, but the momentum remains with the longs.

Meanwhile in UK the eco data printed somewhat mixed with GDP slightly beating forecasts at 0.6% versus 0.5% eyed but still well below the rate of prior quarters. Current Account deficit also expanded at a much higher pace than forecast rising to a gap of -32.7B versus -21.2B projected. The debt to GDP ratio rose to 7.3% this quarter and 5.2% of GDP for the whole of 2015 which was the biggest gap ever.

The data shows that investors are starting to pull out their funds as the uncertainty of Brexit begins to weigh on capital flows. UK officials wasted no time in making that point with George Osborne noting that the slower pace of GDP growth is a direct result of Brexit concerns. Yet the FX markets remain nonplussed about the situation and cable popped higher in the aftermath of the news stopping just short of the 1.4400 figure. As we’ve argued before the true impact of Brexit on sterling probably won’t be felt until we get closer to the actual vote in June.

Finally in North America today the calendar only carries the Chicago PMI data which is expected to rebound above the 50 boom/bust level. A pop above that mark could provide a psychological boost for the buck indicating that the slowdown in manufacturing may be over. USD/JPY has held firm above the 112.00 level and any upside surprise could push it towards 113.00 as the day progresses.

Boris Schlossberg
Managing Director

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