Dollar Dump Continues As Market Loses Faith

Market Drivers October 09, 2015

Euro hits three month highs
UK Trade data misses
Nikkei 1.64% Europe 0.54%
Oil $50/bbl
Gold $1150/oz

Europe and Asia:
GBP UK Trade Balance -11.1B vs. 10.0B

North America:
CAD Employment 8:30

The euro hit three week highs today coming within a few pips of the of the 1.1350 level in early European dealing as traders continued to sell the buck in the aftermath of yesterday's release of the FOMC minutes.

Although the minutes revealed that most the FOMC members were ready to begin normalizing monetary policy, the lack of any inflationary pressures and the deterioration in global economic conditions forced them to hold off on any action for now.

With US economy slowing down since the time of the meeting, the general macro climate has become less rather than more amenable to any tightening policy action. Therefore the markets are reacting in kind by selling the greenback across the board.

The dollar was lower against the commodity block as well with Aussie rising all the way to 7325 while kiwi climbed above the 6700 level. With US policymakers almost certain to keep rates on hold until at least December the high yielders have come back into fashion as carry traders returned. The rebound in commodity prices has also helped especially with crude trading above the $50/bbl level.

The economic calendar had little impact today with only UK Trade data on the docket. The UK Trade deficit widened to 11.1 B from 10.B eyed and cable came under some mild selling pressure in the aftermath of the release dropping to 1.5338, but the pair soon shrugged off the news and returned to trade above 1.5370. Yesterday's mildly hawkish remarks by Governor Carney who admitted that wage growth was starting to accelerate helped keep the bid in the unit as traders continue to anticipate that BoE may tighten rates contemporaneously with the Fed.

In North America today the only report of note is the Canadian employment data which is expected to print at 10.5K versus 12.0K the period prior. The unemployment numbers are forecast to decline to 6.9% from 7.0%. Although oil prices have climbed over the past few weeks, the economic climate in Canada remains challenging. and given the weaker results in Ivey PMIs the prospect of a miss is high. If Canadian data does miss the loonie will likely continue its drop against the other antipodeans. With no yield to speak of and even a slight chance of further easing the Canadian dollar may have reached its near term peak at the 1.2900 level and unless oil prices continue to rise, the rally in loonie may have run its course.