Speculators Add to Sterling and Peso Shorts, While Cutting Euro and Canadian Dollar Longs

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Speculators made several significant position adjustment in the CFTC reporting week ending August 15, that included an escalation of aggressive rhetoric by the US and North Korea.  The reporting period also covered a domestic terrorist incident in the US, and the White House response led to the defection of leaders of America’s largest businesses from advisory councils, ultimately forcing the President to end the entire exercise.  

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Is the Dollar’s August Consolidation Drawing to a Close?

Blog icons - FX Outlook dollarThe US dollar began consolidating earlier this month after trending lower since the start of the year.  We expected this phase to draw to a close shortly.  The Fed’s Jackson Hole Symposium (August 24-26) was going to mark the end of the lull.  The US employment data is released a week later and the ECB meeting a week after that.  The FOMC meeting is a fortnight later.  

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Markets Exaggerate, That is what They Do

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First, we told you that the FOMC minutes were not as dovish as the dollar and US Treasury yields may have suggested to many observers.  Neither timing of the balance sheet adjustment (Sept announcement) or the odds of a rate hike before year-end changed.  The dollar and US yields had been coming off following the collapse of President Trump’s business councils.  

Now we say that the market is exaggerating the dovishness of the record of the ECB’s meeting.   The specific statement that raised the market’s hackles was:  Concerns were expressed about the possible overshooting in the repricing by financial markets, notably the foreign exchange markets, in the future.”  Draghi said at the time officials took note of the euro’s appreciation.   Was that a fair characterization of what the record said?  

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Is the Yen or Swiss Franc a Better Funding Currency?

new conceptRetail investors and some institutional investors focus on the asset they want to acquire in anticipation of price appreciation.  The game for some institutional investors is more complicated.  It is not only about the asset that is to be purchased, but it is also about how the purchase is funded.  A low returning asset is a drag, but if the funding costs can be reduced, a low returning asset may still be attractive. 

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NAFTA: Rock, Paper, Scissors


The North American Free Trade Agreement is more than 20 years old and should be updated.  This has been clear for several years.  It was anticipated that the upgrade would be part of the Trans-Pacific Partnership, which had entered its final stages of negotiations before President Trump pulled the US out of the effort that it had previously sponsored as part of the pivot to Asia.   

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Synthetic FX View–Macro and Prices

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An escalation of threatening rhetoric by the United States and North Korea emerged as the key driver last week.  The US was unable to build on the success it enjoyed at the UN on August 5 when the Security Council unanimously voted to impose the stiffest sanctions to date on North Korea.  Even if President Trump’s “fire and fury” threat was more visceral than strategic initially, there have been several opportunities to backtrack, and instead, the administration seemed to double down. Continue reading

Outlaw Mondays

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The US dollar is narrowly mixed to start the new week. Two main developments stand out.  First, the dollar-bloc currencies are trading heavily.  The Australian dollar is pushing lower for the fifth consecutive session.  The greenback is advancing against the Canadian dollar for the sixth consecutive session.  The New Zealand dollar is weaker for the fifth time in six sessions.  

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