Jan 26, 2017 - Market Update - FX themes

USD

• Seeing disconnect – stocks, bond yields higher but no reaction in USD
• USD seems to be Trump sensitive
• Market should realize the underlying strength of USD vs uncertainty around Trump policies
• At the moment investors prefer US equities over Treasuries what was also seen in the weak auction demand
• Very unlikely the divergence between USD and US yields to stay for very long. The 10-year yield is currently around 2.54% (monthly high), so watch closely today’s US data and next week FOMC and NFPs
• As US economy is closing output gap (companies will have more and more capital needs going on) while savings ratio is declining, we may experience new pressure to push yields higher, thus USD higher too
• It will adversely impact JPY, as lower yielding Japanese assets will be more and more out of favor of investors, who will be subsequently swapping back to USD

CNH

• PBoC making sure banks strictly control lending in Q1
• What is in a bit of contrast of recent info about relaxing margin trading rules
• USD and CNH – Trump, FX manipulation, free global trade, tensions…a lot is boiling around

GBP

• Theresa May to make official a Brexit parliament bill
• Brexit Secretary to speak out
• Weak retail sales went out almost unnoted
• May meeting Trump on Friday

EUR

• Vows around Italian Constitutional Court ruling not impacting EUR 
• 1.0700 seems to be a history for the time being

Good luck Champs!

Mr Hawk

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