Ahead of Holiday – Dollar Under Pressure

Market Drivers November 22, 2017
USDJPY back to 112.00
Euro holds above 1.1750
Nikkei 0.48% Dax 0.01%
Oil $58/bbl
Gold $1284/oz.

Europe and Asia:
No Data

North America:
USD Durable Goods 08:30
USD U of M 10:00
USD Fed Minutes 14:00

The dollar was visibly weaker on the final full trading day of the week, ahead of the long Thanksgiving holiday weekend in North America.

USDJPY dripped lower all night long finally tripping the 112.00 barrier where it held ground in subdued morning London dealing. Despite rising equity markets, steady yields, positive economic data and the prospect of a Fed rate hike in December USDJPY has done nothing but slide lower over the past few weeks. What gives?

The problem for the pair is that the market remains skeptical about any further rate hikes in 2018. For now, the Fed funds futures curve is decidedly flat for 2018, with most traders concerned that the Fed will remain on the sidelines far into 2018 amidst the absence of any inflationary pressures.

A few weeks ago we noted that USDJPY has decoupled from many of its correlations including those with bonds and equities. That generally suggests further trouble for the currency as traders ignore the past beneficial relationships and only focus on possible risks. Today the market will get a glimpse of FOMC minutes which could send the pair lower if they do not offer an unambiguously hawkish message. For now, the 111.50 support remains key – but a break there could usher in a tidal wave of selling all the way to 110.00

Elsewhere, in UK the market will be looking at the UK government budget and traders will focus on key growth assumption issues, any updates on Brexit as well as any possible expansions of fiscal policy. Ahead of the event, cable has been steady at 1.3250, but if the budget veers towards austerity cable could quickly weaken and 1.3200 will likely be tested.