Key events in the week ahead with implications for early 2014.
Overview of market positioning and technical indicators on the eve of the FOMC meeting.
While the perma bears may find comfort in the dollar's decline, its weakness has not been very broad, but really limited to the euro, sterling and currencies that move in their orbit. Still further dollar declines look likely near-term.
- America’s Role as Consumer of Last Resort Goes Missing (BBG)
- Holiday sales sag despite blitz of deals (WSJ)
- Abe Support Falls Below 50% for First Time Amid Secrecy Drive (BBG)
- U.S. airlines give China flight plans for defense zone (Reuters), while Japan: no change to airlines' notification policy when flying in East China Sea zone (Reuters)
- Thai protesters seek to topple PM after clashes (Reuters)
- Hilton Seeks as Much as $2.4 Billion in Biggest Hotel IPO (BBG)
- Biden on delicate mission to defuse tensions in East Asia (Reuters)
- Fed eyes financial system weak link (WSJ)
- Pentagon in line of fire in US budget war (FT)
- China’s monetary squeeze collides with housing bubble (FT)
Overview of the week's economic and poltiical calendar in the context of the investment climate.
Overview of the near-term outlook for the major currencies.
An overview of the near-term US dollar outlook. Not thinking it is crashing and burning next week simply because it is not backed by gold or because the Fed is engaged in QE.
The US dollar looks vulnerable to additional losses next week. While we had correctly anticipated the greenback's losses last week, we had expected it to begin recovering ahead of the weekend. This did not materialize and, leaving aside the yen, the dollar finished the week near its lows. Generally speaking, the technical outlook for the greenback has soured and, in fact, warn of some risk accelerated losses in the period ahead.
As suggested here last week, the dollar moved higher over the past five sessions. Although it finished the week on a firm note, I suspect we may have a pullback before seeing higher levels. Here is why.
The Fed seems to be facing two major risks: first, premature tapering disrupting markets and triggering global turmoil across asset classes, thereby threatening the fragile economy recovery; second, delayed tapering further fuelling asset price bubbles, which could burst eventually and do major damage. UBS' Beat Siegenthaler notes the September decision suggested a Fed more worried about the fragile recovery than about the potential for asset bubbles and other longer-term problems associated with extended liquidity injections. Whereas it had originally assumed that a gradual tapering would result in a gradual market reaction, Siegenthaler explains it is now clear that the situation is much more binary; and as such, the hurdles for tapering might be substantially higher than originally thought.
Just when the dollar's last rites were being considered, it has bounced back and looks poised to move higher in the days ahead.
There was some hilarious news overnight: such that supposedly Spain's GDP rose 0.1% in Q3 thus ending a 2+ year recession. There is no point to even comment on this "recovery" - we will merely remind that starving your economy of imports for the sake of generating a GDP-boosting trade surplus, while consumption declines, solves nothing and point readers to charts of Spanish non-performing loans, housing prices, and unemployment, oh and the massive Bad Bank of course, and leave it at that. In terms of real news, futures are lower following a drubbing in Asia over the previously discussed concerns over tighter Chinese monetary policy. Amusingly, as Reuters notes, this has hit global shares still high on hopes of extended U.S. stimulus on Wednesday, when the dollar tentatively steadied at an eight-month low after its latest slide. The immediate casualty is the USDJPY, which continues to slide and is approaching the 200SMA. In short: fears that China may have resumed tapering have offset yesterday's hope that "horrible" job numbers mean no Fed tapering until mid-2014.... New Normal fundamentals.
Dispassionate discussion of some of the vexing issues.
Overview of the price action in the fx market.
Technically, the dollar is looking a bit better. Here is our assessment.