Overview of the near-term outlook for the major currencies.
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 DB notes, it appears that markets continue to steadily price in a greater probability of a December taper judging by the 2bp increase in 10yr UST yields, 1.2% drop in the gold price and an edging up in the USD crosses yesterday. Indeed, the Atlanta Fed’s Lockhart, who is considered a bellwether within the Fed, kept the possibility of a December tapering open in public comments yesterday. But his other comments were quite dovish, particularly when he said that he wants to see inflation accelerate toward 2% before reducing asset purchases to give him confidence that the US economy was not dealing with a “downside scenario”. Lockhart stressed that any decision by the Fed on QE would be data dependent - so his comments that the government shutdown will make coming data "less reliable" than might otherwise have been, until at least December, were also quite telling. The dovish sentiments were echoed by Kocherlakota, a FOMC voter next year. In other words, an Oscar-worthy good-cop/bad-cop performance by the Fed's henchmen, confusing algotrons for the second day in a row.
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.
Just when the dollar's last rites were being considered, it has bounced back and looks poised to move higher in the days ahead.
Overview of the price action in the fx market.
It may seem counter-intuitive but the US dollar appreciated last week, despite the partial closure of the Federal government, the heightened risk of default and the nomination of Yellen. The dollar can move higher next week too.
Technically, the dollar is looking a bit better. Here is our assessment.
No, we are not talking the stock market reaction, which is driven purely by trillions in excess global, fungible liquidity sloshing around and as a result stocks are up on government shutdown day in a complete mockery of, well, everything. Instead, this is what Wall Street sellside strategists believe will be the impact of the shutdown (and how it ties in with the far more important debt ceiling negotiation). It should not be at all surprising that to virtually everyone, the shutdown (or any other negative development) is a "buying opportunity" which makes sense: after all the person who is truly in charge of the "wealth effect" will be up and running uninterrupted and there is no risk today's $2.75 - $3.50 billion POMO will be even modestly delayed.
Overview of near-term dollar outlook.
In a move that clearly seeks to distance the second largest Swiss bank from potentially "risky" or just not that profitable (read "rich or super rich") accounts, Credit Suisse announced today that it plans to close some clients' accounts as it focuses on high-value customers in some countries and pulls out of others altogether. The development is somewhat ironic: while banks around the world scramble to obtain ultra cheap funding, of which deposits are currently the cheapest alternative, Credit Suisse is saying to people, thanks but no thanks, we don't want your money. Then again, perhaps this is an admirable stance by the bank. It certainly is preferable to CS eagerly accepting every last Swiss Franc only to pull a Cyprus in a few months (indicatively speaking) and "bailing in" said money. It does however pose the question: has CS found an alternative method of funding its assets now that it is actively deleveraging, and if so what, and who is the source?
Price action in the foreign exchange market in the context of fundamental developments. Disappointing US jobs data clouds the near-term outlook for the greenback,
Quick, dispassionate overview of the fx market.
Anticipation of Fed tapering is being cited for both dollar gains and dollar losses. What gives?
Discussion of recent and prospective price action in the foreign exchange market.