Potential big bangs to finish shortest month 24Feb1`7


Potential big bangs to finish shortest month

Michael O’Neill

FX Trade Strategist / www.Loonieviews.net

Canada

·

· Canada inflation data surprises to the topside

· President Trump and treasury secretary Mnuchin delivering mixed messages

· Busy week ahead with major president Trump speech and month end on tap

The loonie has been steadily strengthening this week, which be cause

for concern to Bank of Canada governor Stephen Poloz, who knows the benefits a weak currency can have on trade. Photo: Shutterstock

By Michael O’Neill

The loonie and the BoC

Canadian economic data releases since the last Bank of Canada (BoC) policy meeting on January 19 have been robust. Sure, there were a couple of hiccups, including a decline in retail sales reported earlier this week. But by and large, the domestic economy looks pretty good.

Employment gains continue to surprise to the upside, the trade surplus widened, manufacturing shipments increased and inflation jumped. CPI in January rose 2.1% – versus the forecast of 1.6% – year-over-year and is within the BoC’s target zone.

Chart: Canada CPI

Source: Statistics Canada

That’s the kind of news that warms the cockles of a central banker’s heart. Unless, you are Stephen Poloz, governor of the Bank of Canada.

Poloz will be unhappy. He knows the benefits of a weak currency on trade. The steadily improving Canadian dollar – supported by firm and rising oil prices – jeopardises future growth prospects. Friday’s inflation-inspired USDCAD selloff that threatens to test support in the 1.2990-1.3000 area may have set off some warning bells at BoC headquarters

On Wednesday, the BoC is widely expected to leave rates unchanged.

It won’t be much of a stretch to expect the statement to downplay the recent economic performance while stressing the downside risks to economic growth. President Trump and his yet-to-be-disclosed trade tweaks is a ready-made excuse for caution. There won’t be anything about “rate hikes being discussed” because there isn’t a press conference. Just a statement.

Traders may write off the BoC meeting as a non-event leaving USDCAD direction to be decided by technicals and the US dollar. Trump’s currency manipulation talk and rumours that the highly-touted tax reform plan will be delayed, have undermined the US dollar against the majors.

The Canadian dollar is a beneficiary.

The prospect of month-end demand for Canadian dollars from portfolio rebalancing flows adds another element of support to the loonie. The risk is if oil prices correct. The sharp rise in WTI – despite a lack of evidence that global inventories have diminished in a meaningful way – suggests that a downside move is possible.

USDCAD technicals are bearish in the context of a 1.2970-1.3220 trading band. The intraday downtrend from Wednesday’s peak of 1.3207 (which is also the downtrend line from the end of December) is intact while prices are below 1.3110. A decisive break of support below 1.3060 will target 1.2960-1.3000. Nevertheless, the 1.2960-1.3220 band has contained price movements all of February and will likely do so again next week.

Chart: USDCAD (4-hour)

Source: Saxo Bank

The week ahead

The coming week’s FX action will be far removed from the prior week’s random walkabouts. The Trump circus will be under the big top (well, actually the Capital Dome) when the president addresses a joint session of Congress on Tuesday.

Monday, the enthusiasm for Eurozone and US data releases that include Durable Goods data releases could be overshadowed by angst ahead of president Trump’ speech on Tuesday.

Tuesday will be busy. It kicks off with the New Zealand trade report, a slew of data from Japan and Australia home sales and trade. There is a lot of Eurozone data, a US GDP report accompanied by a slew of other data. Tuesday is also month end. The outperformance of US equity indices against Canada and Europe implies US dollar selling at the fix. The day will finish with president Trump.

Wednesday, fall-out from whatever Trump says, Australia GDP data, and China PMIs should ensure a lively Asia session. It is PMI day in the Eurozone and the UK. The Bank of Canada interest rate decision will be big news for Loonie traders.

Thursday’s Asia session only has to deal with Australia trade data. Europe will contending with key Eurozone data, including inflation. It is a fairly quiet data day in the US, but Canada releases GDP data.

Friday will kick off with Japanese inflation data and then a slew of services PMI reports in Europe. Eurozone retail sales data are also on tap. There aren’t any US data of note which likely means a quiet end to the week.

US president Donald Trump is expected to elucidate his financial and economic policies during a speech before Congress on Tuesday. Photo: Shutterstock

The week that was

It was a short week for traders in the US and they were thanking their lucky stars because this

was another week of light data, and choppy, rangebound FX markets

Monday was expected to be quiet and it was. EURUSD opened at 1.0674, the high for this week, and slid steadily until finding a bottom on Wednesday. It was a similar story for USDJPY – it started the week at 112.64 (the bottom of the range) and it wasn’t seen again until Thursday. The antipodeans traded sideways. Sterling got a lift in Europe on better-than-expected data rising from 1.2408 to 1.2475.

Tuesday, kiwi traders soured on the outlook for NZDUSD and sold it from 0.7188 to 0.7108 by the New York open. The aussie tracked the kiwi lower within the same time frame, suffering from modest disappoint with the Reserve Bank of Australia minutes. USDJPY drifted from 113.05 to 113.78 on rising Treasury yields but that move peaked at 113.76 in early New York trading. French election concerns weighed on EURUSD. In Europe, GBPUSD got beat up following the Bank of England’s inflation report and gave back all of Monday’s gains. EURUSD slumped on hawkish interest rate chatter by Philadelphia Fed president Harker, falling from a European peak of 1.0585 to 1.0524 by the New York close. USDJPY peaked at 113.72, where it closed. US Markit PMI data missed the forecasts.

Wednesday, Cleveland Fed president Lorretta Mester’s mixed message on interest rates undermined USDJPY, which fell from 113.68 to 112.97 by the New York open. Aussie and kiwi firmed in Asia but only kiwi held on to the gains in Europe. There was a downward revision in Q4 year-over-year GDP data to take the shine off sterling and it dropped from 1.2505-1. 2439. The US dollar gains evident at the open in New York were nowhere to be found by the end of the day. The market decided that the Federal Open Market Committee minutes were cautious and thus doveish, putting March rate hike expectations into the dustbin. US dollar buyers became US dollar sellers and the greenback finished the day with losses against the majors except for yen. Oil prices spiked from the lows on a smaller-than-expected build in US crude inventories.

Thursday, Asia traders extended the US dollar selling spree but with a lack of enthusiasm. AUDUSD declined from 0.7710 to 0.7663 in early Asia trading because of weak capex data but the soft tone to the US dollar against the majors gave it support. AUDUSD was flirting with 0.7700 at the New York open. EURUSD and GBPUSD managed to hang on to most of the previous day’s gains. The US dollar was flat to slightly higher at the New York open but ended the day down across the board. Sterling was the big mover, perhaps because Wednesday’s plunge following the GDP miss was overdone. Jobless claims missed forecasts but what really spooked traders were comments from US Treasury Secretary Mnuchin that Trump’s highly touted tax plan may be delayed.

Friday traders were wrapping up their week digesting President Trump’s China currency comments and what it really meant.

Between the president’s bellicose tweets and Mnuchin’s more amiable remarks, none of us are any the wiser as to the Trump administration’s true stance on China. Photo: Shutterstock

– Edited by Jack Davies

icon-envelope-tick-round-orange-animated-no-repeat-v1.gif Virus-free. www.avast.com
Advertisements

President Trump is not your grandma’s president 17Feb17


President Trump is not your grandma’s president

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

· Dollar finishing week on a mixed note – commodity currency bloc on losing end

· Media coverage of president Trump good for nimble traders

· Week ahead may lack the excitement of previous weeks

The press has not been hugely complimentary of US president Donald Trump since he took office, but that doesn’t mean he’s not popular. Photo: White House

By Michael O’Neill

There is no shortage of stories about president Trump, especially negative ones. He has managed to thoroughly irk the media, particularly journalists from CNN, the Washington Post and New York Times.

Supposedly objective reporters deliver stories about the president and his policies while spitting venom and bursting blood vessels. “Never has so much vitriol been spewed by so many about so few,” Winston Churchill might have said of the media’s coverage of Trump.

It appears that the bulk of employees of mainstream media did not vote for Trump, and it shows in their reporting. Hollywood has gotten in on the act, too.

Actors get a lot of attention for spouting anti-Trump comments, even though many of them are unable to string two sentences together if they are not written by someone else and spelled out on a teleprompter.

Leonardo DiCaprio is a perfect example. He is considered a climate change expert. While filming the Revenant in Alberta, Canada, the high school drop-out experienced a “Chinook”. A Chinook is a warm, dry, gusty westerly wind that blows down from the Rocky Mountains and It is as common as sand in a desert.

Leo was impressed. The CBC reported that in an interview with Variety magazine he described his experience thus:

“It was scary. I’ve never experienced something so firsthand that was so dramatic. You see the fragility of nature and how easily things can be completely transformed with just a few degrees difference. It’s terrifying, and it’s what people are talking about all over the world. And it’s simply just going to get worse.”

Pictured addressing the UN General Assembly ahead of the signing of the Paris

Climate Accord, Leonardo DiCaprio has been a prominent advocate for

environmental issues. Photo: Shutterstock

When idiots are given a podium, the message gets muddled.

That is exactly what is happening with Trump coverage. No one is reporting about massive demonstrations by autoworkers in Michigan and Ohio, upset because President Trump wants American cars to be built by Americans in America – that’s because it isn’t happening.

How do American workers benefit by exporting their high-priced jobs to third world countries? They don’t. It is tough to live the American dream if your only career choice is part-time work in the hospitality industry.

The immigration ban was blown out of proportion. Trump was vilified while Obama was praised for doing the same thing.

Nimble traders are getting wise to the media hype and hysteria and are quick to run with, then fade, US dollar moves following an inflammatory headline.


The week that will be:

It will be a short week for Canadian and US traders due to national holidays on Monday. A US holiday on a Monday is usually a precursor to a quiet trading day in Asia and Europe, which will likely be the case this week as well.

US rate hike considerations, the release of the Federal Open Market Committee minutes on Wednesday and president Trump tweet risks will serve to limit the impact of preliminary PMI data in Europe, released Tuesday. The day will start with AUDUSD traders reading and maybe reacting to the Reserve Bank of Australia minutes.

Wednesday, sterling will be vulnerable to GDP data while EURUSD traders will key in on the Eurozone inflation report. USDCAD traders will focus on retail sales and everyone will be waiting for the FOMC minutes. They may be disappointed as Janet Yellen’s testimony last week might have stolen the thunder.

Thursday is full of second-tier data from the Eurozone, but otherwise doesn’t look very interesting.

The week will end with CPI data from Canada and the Michigan Consumer Sentiment Index. All in all, not a lot of fodder for traders.

The week that was:

This week lacked the drama and excitement of previous weeks, but fortunately Federal Reserve chair Janet Yellen was able to stir the pot, even if was only for a short time.

Monday started tentatively and yen traders were relieved that the weekend’s Trump-Abe meeting went smoothly, which helped USDJPY to tick higher in Asia. EURUSD declined from its Asia peak of 1.0655 to 1.0588 by mid-morning in New York, where it spent the rest of the day. Traders were waiting for Tuesday and Janet Yellen’s testimony to Congress.

There weren’t any notable data and Wall Street closed on a strong note. Canadian prime minister Justin Trudeau paid homage to President Trump in Washington. The next day, White House press secretary Sean Spicer told reporters: “Yesterday the president set — had an incredibly productive set of meetings and discussions with Prime Minster Joe Trudeau of Canada."

Federal Reserve chair Janet Yellen’s comments triggered a lot of excitement, but that soon died down. Photo: the Fed

Tuesday, Asian markets were a tad nervous. US national security adviser Michael Flynn resigned Monday night and that spooked Japanese yen traders into buying yen and selling the Nikkei. Strong Chinese and Australian data boosted AUDUSD. EURUSD drifted higher in Europe while ignoring ZEW data. sterling did not ignore domestic data and dropped following soft CPI numbers. Oil prices moved higher on news that Opec production had dropped by 1.2 million barrels per day since January.

In the New York session, Janet Yellen’s speech was considered hawkish and the US dollar soared. USDJPY rallied to 114.49 from 111.30 while EURUSD probed support in the 1.0560 area. Strong PPI data told Wall Street that the economy was humming along and equities closed higher for the day.

Wednesday, the US dollar extended its gains in Asia and AUDUSD rose as well, supported by a positive economic outlook. The move did not last. In Europe, sterling took a hit on soft data. EURUSD traded sideways in Asia and headed lower in Europe, undermined by politics in France and Greek debt issues. The single currency hit 105.20 in the New York morning. GBPUSD touched 1.2382 at the same time as USDJPY rose to 114.96. Those moves were in response to stronger than expected US data, which included big gains in retail sales and inflation; but it was over quickly.

EURUSD rallied to 1.0608 by lunchtime (which is where it finished the day) and USDJPY dropped from 114.94 to 113.84. sterling bounced back to 1.2477 and there wasn’t a specific reason for the change in sentiment. Oil prices whip-sawed; torn between rising US inventories and Opec production cuts.

Thursday, the US dollar selling pressure continued unabated and extended into the New York open. AUDUSD tried to rally on better than expected employment data but that move ran out of steam. Traders were chalking up the US dollar moves to profit taking after the greenback had made strong gains for the past two weeks.

Friday, sterling was the big loser due to a soft retail sales report. The dollar appeared to be ending the week on a mixed note. The greenback managed gains against the commodity bloc currencies and sterling but drifted lower against the European currencies and yen.

– Edited by Jack Davies

Loonie aiming for new heights, maybe 10Feb17


Loonie aiming for new heights, maybe

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

· The "Trump effect" will loom over markets in days ahead

· Strong Canadian employment data lifts loonie

· Fed chief Yellen may provide some US dollar direction next week

Pretty bird. The loon gives the nickname "loonie" to the

Canadian dollar. Image: Shutterstock

By Michael O’Neill

Look, up in the sky. It’s a bird, it’s a plane. Nope, it’s a bird, a loonie to be precise. And that loonie is climbing high.

Friday’s Canadian employment data showed a gain of 48,300 jobs in January. Five of the previous six reports have surprised to the upside.

Source: Loonieviews.net

The news was icing on the cake for USDCAD bears. USDCAD dropped from 1.3135 to 1.3072 on the news, extending this week’s downtrend.

There may be further USDCAD downside ahead due to seasonal factors, US administration teething problems and position adjustments.

For nine of the past 10 years, USDCAD has tended to weaken in the first four months of the year. There isn’t one specific factor for the move, though a lack of corporate repatriation flows may be a contributing factor. Canada is home to subsidiaries of many US multinationals. When year-end approaches, USDCAD is in demand as multinationals repatriate profits back to the parent company. By the time January rolls around, these flows have dried up.

Comments about unfair currency practices from China, Japan and Germany have undermined the US dollar in the past week, and the loonie was a beneficiary.

The 2017 forecasts for USDCAD were bullish, with targets in the 1.3700-1.4000 area. The forecasts attracted a lot of buyers who may be suffering from “buyer’s remorse” at the moment.

Nevertheless, it won’t be all sunshine and unicorns for USDCAD bears.

President Donald Trump plans to reveal details of his tax plan in the next "couple of weeks". His tax plan sparked the so-called "Trumpflation trade”, which boosted the greenback on prospects of an increase in inflation leading to interest rate hikes. The controversy over his immigration ban distracted traders and led to USD selling. If the Trumpflation trade gets legs, USDCAD will quickly find a floor.

Trump is meeting with Japanese prime minister Shinzo Abe on Friday and at the weekend. If Trump plays nice, the risk of a US-Japan trade spat will dissipate and US dollar buyers will emerge, which would also be bullish for USDCAD.

Unless, USDCAD decisively breaks below support in the 1.2970-90 area, the downside will be contained and USDCAD will continue to see-saw within the 1.2990-1.3380 range.

USDCAD 4-hour chart

Source: Saxo Bank

The week that will be

There is a lot of data scheduled for the week. All regions will release economic reports that normally would give some sort of market direction. That may still be the case, but the data’s effect on local currencies may have a short shelf-life. That is the Trump effect.

Trump’s February 8 statement to the effect that he would unveil his "phenomenal" tax plan in the next couple of weeks will dominate FX markets until then, at the expense of economic data.

On Monday, Japan’s GDP data will be overshadowed by reports from Abe’s meeting with Trump.

On Tuesday, China’s PPI and CPI data are expected to show increases partly due to the rise in commodity prices. German economic data may be under closer scrutiny after US National Trade Council head Peter Navarro’s comments that Germany is using a weak euro to benefit itself. Eurozone GDP and European Commission economic forecasts are also due.

Also on Tuesday, UK data will be examined to see if it supports Bank of England monetary policy committee member Kirstin Forbes’s call for a rate hike. US data will take a back seat to speculation around Trump’s fiscal plans. However, Federal Reserve chief Janet Yellen’s testimony to Congress won’t. Markets believe that there is only a 4.4% chance for a Fed rate increase in March. Will Yellen hint at something different?

Wednesday is another heavy day for data in the Eurozone, UK and the US. US CPI may be the most closely watched of the data series as will the second day of Yellen’s testimony.

On Thursday, Australia releases its volatile employment report. Thursday’s US data which may be lost in the fog of Yellen’s earlier testimony or speculation around Trump’s tax plan.

Friday may be a day of rest but not sleep. New Zealand releases retail sales data, and then things will get quiet until the European morning when the UK retail sales data is due. There is no US data of note suggesting it will be a quiet Friday in New York.

President Trump told a gathering of airline executives that he would present

a "phenomenal" tax plan in a few weeks. Image: Shutterstock

The week that was

There was a risk that President Trump would something that disrupted markets. He did.

Monday, there wasn’t a lot of follow-through in US dollar selling following the “soft-ish” US nonfarm payrolls report. (Big job gains offset by a rise in jobless rate and decline in wage growth). Chinese and European data didn’t provide any trading fodder. French political turmoil weighed on EURUSD, and a whiff of risk aversion led to selling.

Tuesday was busy. Asia traders bought US dollars, partly because of comments from Philadelphia Fed President Patrick Harker suggesting a rate hike in March would be appropriate. Those comments were enough to halt the USDJPY slide. USDJPY bounced between a 111.80-112.50 range in Europe and New York. Kiwi inflation data propelled NZDUSD higher while a modestly “less-doveish” Reserve Bank of Australia gave AUDUSD a bid. The antipodean gains were erased in Europe. The UK parliamentary debate on who can trigger Brexit drove GBPUSD to 1.2345. The sellers became buyers in the New York morning when Bank of England monetary policy committee member Kristen Forbes talked of a need for the UK to raise interest rates. GBPUSD rebounded to 1.2544 and closed just below that level. EURUSD gave back all its Asia gains in Europe and New York due to French political uncertainty and new Greece debt talks. Oil prices came under pressure after the American Petroleum Institute reported a 14.2 million barrel increase in US oil inventories.

Wednesday, USDJPY remained rangebound and choppy, but was confined to a 111.60-112.60 range the entire day. Asia traders bought EURUSD initially and then changed their minds and started selling. European traders followed suit, and by the time New York opened, EURUSD was probing support at 1.0638. A dip in Treasury yields and persistent uncertainty around Trump’s economic policies undermined the US dollar, and EURUSD rallied to 1.0713 before easing back into the close. Sterling traded sideways within a 1.2475-1.2550 band. Oil prices were still under pressure when the Energy Information Administration released its weekly crude stocks report. The data confirmed what the API data had shown on Tuesday, but this time traders bought oil. WTI rallied from a low of $51.48/barrel to $52.65/b and has been drifting higher ever since. A drop in gasoline inventories and expectations for rising future demand underpinned prices.

On Thursday, the New Zealand dollar was centre stage at the Asia open after the Reserve Bank of New Zealand left rates unchanged (as expected) but delivered a somewhat dovish statement. NZDUSD dropped from 0.7263 to 0.7192 before drifting back to 0.7229 in Europe. EURUSD was very choppy inside a narrow range. Traders are torn between rising Eurozone political woes, including more Greek debt trouble, and US political developments.

A bump in the UK housing price balance to 25% from December’s 23% reading gave GBPUSD a boost, taking it from 1.2499 to 1.2580.

US jobless claims were better than expected, but nothing for traders to get overly excited about. New Yorkers were more concerned about a storm that dumped nine inches of snow in Manhattan. And then along came Trump. Around mid-morning, Trump announced he would be releasing details of his tax plan in the next couple of weeks. Suddenly, everyone wanted dollars, and the greenback finished firmer against all the G10 currencies. US equity indices made new intraday highs.

On Friday , the US dollar was ending the week on a firm note, but well within recent ranges.

— Edited by John Acher

Michael O’Neill is an FX consultant and currency strategist at Loonieviews.net

Trump and Navarro upset FX apple cart


Trump and Navarro upset FX apple cart

Michael O’Neill

·

· US jobs report details undermine strong headline figure

· USDCAD may be close to the bottom, support seen in 1.2960-1.2990 area

· Trump and US trade official Navarro spark worries of "currency wars"

· An unfiltered US president Trump is biggest FX risk next week

The new Trump administration persists in generating worries about

global trade and "currency wars". Image: Shutterstock

By Michael O’Neill

US president Donald Trump and his National Trade Council head Peter Navarro upset the FX apple cart this week.

Trump said, “You look at what China’s doing, you look at what Japan has done over the years. They — they play the money market, they play the devaluation market and we sit there like a bunch of dummies."

Those words set the “rising sun” flapping in a gale of denial from Japanese officials. Japan’s prime minister Shinzo Abe even offered to explain Japan’s monetary policy to Trump.

On the same day, Navarro told the Financial Times that Germany is using a “grossly undervalued euro” to gain a trade advantage over the US.

German officials were indignant. Chancellor Angela Merkel said, “We will not influence the behaviour of the European Central Bank."

Those comments flipped the apple cart and the US dollar tanked.

Loonie soars as US dollar wobbles

USDCAD has retreated from its January 18 peak of 1.3388 after the Bank of Canada governor’s comments suggesting that rate cuts are still on the table. Since then, the Canadian data have been mixed, though December GDP was a touch higher than forecast. The USDCAD decline has been all due to a reversal in the US dollar’s fortunes.

At the beginning of 2017, expectations for a rising US dollar were widespread due to the risk that US interest rates could rise faster than forecast. That was because of Trump’s expected infrastructure spending and corporate tax cuts.

Since then, FX traders have revised their outlooks on assumptions that increased US protectionist policies and Trump’s "undervalued" foreign currency views would lead to a much weaker USD.

However, those fears may be unfounded. Trump has not announced his infrastructure plans or tax cuts. When he does, FX markets may be singing a different tune and the USD should turn bid.

There was nothing in this week’s Federal Open Market committee statement to suggest that US interest-rate hikes wouldn’t proceed as forecast, which should add another layer of support to the greenback.

In that environment, USDCAD is unlikely to decline beyond support in the 1.2960-1.2990 area,

USDCAD (daily) finding support

Source: Saxo Bank

The week ahead

President Trump and his lack of a diplomatic filter have injected a high degree of uncertainty into FX markets, and that may be even more evident in the coming week, due to a lack of top-tier US data on the calendar.

Australia could make the start of the week interesting with inflation data and retail sales reports ahead of Tuesday’s Reserve Bank of Australian interest rate decision. But the week will get started later than usual in New Zealand due to its Waitangi Day holiday on Monday.

Wednesday, China trade data will be in the spotlight, this data could cause more than a ripple because of Trump’s fixation on trade. The same will hold true on Thursday when Germany releases its trade data. Thursday’s Asian action will start with the Reserve Bank of New Zealand interest-rate decision which is the only major release for the day among G10 currencies.

The week will end with Canadian employment data and nothing of note from the majors.

Don’t forget New Zealand’s Waitangi Day national holiday

on Monday, February 6. Photo: Shutterstock

The week that was

The week was expected to be fairly wild. It had its moments.

Monday, the US dollar gapped lower at the Asian opening, because of Trump’s new immigration policy. He banned immigration from seven Muslim-majority countries. The move was accentuated by disappointment from the previous Friday’s US GDP report and Chinese New Year holidays.

The US dollar sank in Asia, recovered in Europe, and then dropped again during the New York session.

Oil prices were whipped around by optimism that Opec production cuts would work and pessimism over the prospect of increase supply from rising US rig counts.

Tuesday got off to a quiet start in Asia, and even a Bank of Japan policy meeting couldn’t spark any excitement because the BoJ delivered what was expected.

EURUSD see-sawed within a narrow range until better-than-expected Eurozone GDP and inflation data gave it a modest bid, which accelerated after New York opened.

UK data did not help Sterling. Weak consumer credit contributed to a sharp drop in GBPUSD from 1.2515 to 1.2409. It bounced in early New York trading.

The New York session was messy. The dollar dropped across the board on a mix of dollar selling for month-end portfolio rebalancing and comments from Trump and his trade advisor, Peter Navarro. Navarro complained that the euro was undervalued, giving Germany an unfair trade advantage. Trump told pharmaceutical companies that currency devaluation by other countries led to US drugs being produced offshore. Traders told themselves “currency wars”, and the dollar dropped.

EURUSD jumped to 1.0809 from an overnight low of 1.0684. USDJPY dropped to 112.08 from 113.95 in the same time period.

Wednesday was FOMC day. USDJPY opened with a bid on speculation that the Fed statement would lean toward hawkish. It didn’t. Kiwi got wacked on a weaker-than-expected employment report. EURUSD traded sideways in a narrow range. The Trump administration’s reference to Germany and Japan as “currency manipulators” underpinned the single currency. Sterling extended the previous day’s gains and ignored a dip in UK manufacturing PMI.

The US dollar inched higher in New York ahead of the FOMC statement helped by a strong ADP employment report and positive manufacturing PMI reports. EURUSD dipped to 1.0730 from 1.0806, while USDJPY climbed to 113.98 at option expiry time and then touched 112.80 after the FOMC announcement. At the time, the FOMC statement was viewed as a non-event and, if anything, modestly upbeat.

On Thursday, Asia’s reaction to the FOMC was to sell dollars across the board. The Australian dollar got the ball rolling and was the best-performing G10 currency thanks to help from a better-than-expected trade report. The Japanese yen was a close second. In Europe, EURUSD broke 1.0800 and hit 1.0828 in early New York trading.

GBPUSD traded sideways ahead of the Bank of England’s interest-rate announcement. The BoE left rates unchanged. GBPUSD plunged to the overnight low (1.2624) when BoE governor Mark Carney implied that even a low unemployment rate wouldn’t lead to higher interest rates in the near term.

ECB president Mario Draghi blamed governments for their countries’ economic woes. He also said that benefits from leaving the euro were a mirage.

Even oil prices rallied despite Wednesday’s report from the US Energy Information Administration of another large build-up in US crude inventories.

The US dollar retreat ended when New York walked in and closed the day with very modest gains against the G10 spectrum. Speculation of a higher-than-forecast nonfarm payrolls report fuelled the dollar demand.

On Friday, the US nonfarm payrolls headline figure lived up to expectations, but the details did not. The US dollar was trading on the defensive as Europe closed for the week.

Markets are still getting to grips with a new, unfiltered

reality. Image: Shutterstock

— Edited by John Acher