Early Signs of Dollar Strength?

Market Drivers April 12, 2018
EZ Industrial Production misses
Dollar Finds a bid
Nikkei -0.12% Dax -0.14%
Oil $66/bbl
Gold $1348/oz.
Bitcoin $6837

Europe and Asia:
EUR EZ Industrail Production -0.8% vs. 0.0%

North America:
USD Weekly Jobless 8:30
CAD Housing 8:30

It’s been a very quiet night of trade in the FX market with most of the majors holding tiny 20 point ranges throughout Asian and early European trade, but a small wave of risk aversion sent all the high beta currencies lower by morning London dealing leaving the buck slightly higher across the board.

The currency market remains essentially on hold as it awaits both political and economic developments while the calendar itself is practically empty of any first-tier data. The focus still remains on geopolitics as tension builds over the anticipated bombing of Syria. For now, however, there appears to be no threat of imminent action as US tries to corral a coalition of forces to respond to Syria’s use of poison gas. After yesterday’s twitter threat by President Trump, the newsflow has gone eerily quiet leaving markets at a tense standstill.

Meanwhile, in the UK the wrangling over the Brexit negotiations continues with Irish border still the single greatest sticking point in the deal that has stymied progress for now. Cable fell to 1.4150 on risk off flows and remains under pressure going into New York open.

The biggest fall of the night, however, belonged to EURUSD which dropped nearly 50 points off its highs as general dollar strength and disappointing Industrial Production in the region contributed to the selloff. EZ IP contracted by -0.8% versus 0.1% eyed in further evidence that growth in the region may have peaked. This puts the ECB in precarious position as the central bank prepares for a taper of QE just as economic conditions may have deteriorated. This is likely to prevent the ECB from considering any normalization process for the foreseeable future regardless of how much the hawks on the council press for it.

With no major eco data on the docket today, the focus will remain squarely on politics. Dollar’s bounce today suggests that the market is betting on some sort of a measured response to Syria and de-escalation of tensions and if the early strength persists USDJPY should retake the 107.00 figure while euro could tumble through the 1.2300 support but as with any headline driven market the situation remains fluid.