Dollar Loses Momentum Ahead of the Weekend

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Green labryinth maze garden

  • The euro and sterling rebounded the help of German IFO and details of UK Q1 GDP
  • Spain’s Socialists are trying to force a vote of no confidence in the minority government led by Rajoy
  • MXN is near its best level for the week on reports of a compromise offer in the NAFTA talks
  • Oil is softer on reports that OPEC and non-OPEC members will consider boosting output by as much as one mln barrels a day
  • The situation in Turkey remains fluid

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Greenback Pushes Lower

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  • The US dollar is pulling back after recording new highs for the year against the euro and sterling
  • Press reports that the Trump Administration is going to open an investigation into auto imports on national security grounds
  • Much stronger than expected UK April retail sales lifted sterling
  • The FOMC minutes confirmed the Fed’s intention to hike rates next month
  • BOK kept rates steady at 1.5%, as expected; SARB is expected to keep rates steady at 6.5%.
  • With the lira resuming its slide today, more rate hikes are likely; Mexico mid-May CPI is expected to rise 4.41% y/y

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Dollar and Yen Surge, European Data Disappoint

Dollar Yen

Hand hold dollar and yen symbol to compare their value

  • The US dollar has extended its gains against most of the major currencies
  • The flash May PMI eurozone report disappointed; UK price pressures eased
  • Italy political drama is has spurred a significant rally in the Swiss franc
  • Investors focus on the minutes is on the significance of adding “symmetrical” (twice) to the FOMC statement
  • The different responses from Argentina and Turkey to a budding currency crisis couldn’t be any starker
  • Malaysia, Singapore, and South Africa all reported lower than expected inflation; Brazil mid-May IPCA inflation is expected at 2.82% y/y

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Is Turnaround Tuesday Nearly Over Already?

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  • Corrective forces that took hold in the foreign exchange market yesterday extended their hold today
  • The news stream is light and it won’t pick up much in the North American session
  • Italian President Mattarella is being embraced as a check on the populist-nationalist government that is being formed
  • The market has taken little from BOE Governor Carney and other officials speaking before Parliament
  • Brazil COPOM releases its minutes; National Bank of Hungary is expected to keep rates steady at 0.9%

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Drivers for the Week Ahead

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  • The market may look through weakness in US home sales and volatile durable goods orders, confident of the Fed’s path
  • The prospect for a new Greek-like crisis but on a larger scale in Italy are rising
  • The Swiss franc appears to be beneficiary of the heightened political risk in Italy
  • The UK reports April CPI and retail sales
  • Japanese data will not have the heft to heal the blow dealt last week by the outright contraction in Q1 GDP and a second consecutive monthly decline in CPI

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Dollar Firm, Markets Uninspired Ahead of the Weekend

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  • With the help of a softer CPI report, the yen’s declining streak is being extended
  • The other Asian talking point is the conflicting press reports about US-China trade talks
  • The Five Star Movement and the (Northern) League have reportedly finalized their agreement
  • The highlight of the North American session today comes from the retail sales and CPI reports from Canada
  • Despite the deepening EM sell-off, divergences within EM remain; we will publish an updated EM Vulnerability Table later today

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US Rates Edge Higher While Dollar Firms

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  • Press reports claim the UK cabinet had agreed to seeking to stay in the customs union with the EU beyond the two-year transition period
  • After convincingly breaking above 3.0%, the US 10-year Treasury yield is continuing to probe higher
  • The pressure on the Hong Kong dollar peg continues
  • Last night, Brazil COPOM unexpectedly kept rates steady at 6.5%; Banco de Mexico is expected to keep rates steady at 7.5%

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US Yields Soften After Yesterday’s Surge

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  • A good part of the backing up of US short-term rates is a function of rising confidence of the Fed’s course
  • Compare that with the simply awful Japanese GDP figures
  • The US reports April housing starts and industrial production figures
  • Argentina was able to roll over the entire $29 bln in maturing Lebac notes yesterday at rates ranging from 38-40%
  • BOT kept rates steady at 1.5%, as expected; NBP is expected to keep rates steady at 1.5%
  • Brazil COPOM is expected to cut rates 25 bp to 6.25%

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Firm US Rates Underpin Greenback

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  • The Five Star Movement and the League are getting closer to forming a government
  • There are three noteworthy economic reports from Europe today: French wages, German GDP, and UK jobs
  • The US reports April retail sales and May Empire State Manufacturing Survey; Canada reports April existing home sales
  • Several Federal Reserve speakers are also in focus
  • Israel April CPI is expected to rise 0.4% y/y
  • Argentina April CPI is expected to remain steady around 25.4% y/y; it will try to roll over $29 bln in notes under less-than-ideal conditions

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