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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Market Response to De-escalation of Sino-American Trade Tensions: Meh

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The US dollar initially extended its recent run against the euro, yen, and sterling, as the divergence theme has re-emerged as an investor focus.  The market’s response to the agreement in principle between the US and China was mild at best, while Italian assets remain under pressure as a new government’s priorities are awaited, but the rhetoric takes a toll.   Continue reading

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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EM Preview for the Week Ahead

blog-icons-empreview emerging markets previewEM FX ended Friday on a weak note, and extended the slide.  For the week as a whole, the best EM performers were PHP, TWD, and SGD while the worst were ARS, ZAR, and TRY.  With US rates continuing to move higher, we believe selling pressures on EM FX will remain in play this week.  Our recently updated EM Vulnerability Table supports our view that divergences within EM will remain. Continue reading

Dollar Surge Continues

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The US dollar impressive recover over the last few months is continuing and pullbacks are brief and shallow.  Rising US rates and policy divergence have made it increasingly expensive to be short dollars.  Yet positioning adjustments seem to trail behind the price action.  

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What Has Changed in EM

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  • Bank Indonesia started a tightening cycle with a 25 bp hike to 4.5%
  • Jailed Malaysia opposition leader Anwar Ibrahim was released by new Prime Minister Mahathir
  • Malaysia scrapped the controversial 6% goods and services tax (GST)
  • Violent protests shook Israel as the relocated US embassy opened in Jerusalem
  • Argentina committed to fiscal tightening as part of a comprehensive IMF program
  • Brazil central bank delivered a hawkish surprise and kept rates steady at 6.5%.
  • Mexico has started its annual oil hedging program Continue reading

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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