Risk Off Tone Gives Dollar a Slight Bid

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Market Drivers January 17, 2019
Dollar bid as risk-off flows start the day
Trade impasse weighs
Nikkei -0.20% Dax -0.69%
Oil $53/bbl
Gold $1292/oz.

Europe and Asia:
AU Home Loans -0.9% vs. -1.5%

North America:
USD Philly Fed 8:30

With no economic data and little newsflow, the currency markets were very quiet today tracing out 20 pip ranges in most of the pairs, but the tone tilted to the risk off side helping put a slight big into the dollar and the yen.

With Brexit vote past us, the US government shutdown at an impasse and US-China talks showing little progress the markets remained in a state of suspended animation awaiting fresh catalysts.

Cable was steady at 1.2860 after Theresa May survived the no-confidence vote, but there is little visibility as to how she will proceed forward given the impasse over the Irish border issue. Still, the market assumes that at very least the status quo will prevail and at minimum Article 50 will be delayed until a more palatable solution is found.

For now, cable continues to trade on headlines only, but the state of uncertainty is taking its toll on UK business and there is little doubt that any and all investment planning has come to a grinding halt. That reality should begin to reflect itself in Q1 data relatively soon and PM May cannot find a political solution the economic woes will put fresh downward pressure on sterling.

In North America today the calendar only carries the Philly Fed data, but given the recent weakness in ISM Manufacturing and the falloff in Empire State readings, today’s report could take on a bigger significance than usual. The market is looking for a steady print of 10 versus 9.1 the month prior, but if the Philly data prints a downward surprise it would just add to the evidence that demand is slowing down and that estimates for US GDP growth in 2019 may be far too optimistic.

Boris Schlossberg
Managing Director

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