USD tests pre-Christmas highs – Scotiabank

FXStreet Insights Team FXStreet

The US Dollar (USD) has edged back toward its pre-Christmas highs, supported by a modest safe-haven bid following dramatic developments in Venezuela. However, momentum appears to be stalling as Asian currencies strengthen, broader markets remain calm, and investor focus shifts toward a busy week of top-tier US economic data, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Venezuela shock lifts haven demand

"The USD has spent the past week grinding back towards the peaks seen just before the Christmas period, with weekend’s extraordinary developments in Venezuela giving the dollar an added boost from uncertainty/haven demand. Just how much of a lift geo-politics can give the USD remains to be seen; the DXY is already showing some signs of faltering a little above the peaks seen on December 19th and there is a fair amount to top-tier US data this week that will certainly attract more attention from traders and investors and as volumes pick up after the holidays."

"Most attention is on geopolitics this morning but creeping gains for Asian FX may act as a restraint on USD gains in the short run and might be more meaningful for the broader USD direction in the medium term. The JPY is outperforming on the session at the margin which gives a little more credence to the 'safe haven' tone of FX trading at least but gains may also reflect the general strength of Asia FX, pulled along by gains in the CNY through the 7.00 level to its highest in 2 1/2 years."

"US intentions as far as Venezuela are concerned are opaque at this point but its resource wealth is well-known. Broader market reaction is somewhat blasé. Stocks are mostly higher, bonds are a little firmer, with Gilts outperforming marginally, while crude oil is little changed. Gold is firmer. The impact of Maduro’s capture may fade unless the situation deteriorates significantly in the coming days."

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD flatlines near 0.6965 as less hawkish RBA counters USD weakness

AUD/USD holds steady above a two-week low, trading near 0.6965 in the Asian session on Wednesday as early midterm election results heighten political uncertainty and weigh heavily on the US Dollar. Moreover, reviving safe-haven demand triggers a fresh leg down in US bond yields, offsetting Fed hike bets and exerting additional pressure on the buck. However, a less hawkish RBA caps the Aussie.

USD/JPY declines below 158.00 as USD weakens on midterm election results

USD/JPY comes under heavy selling pressure on Wednesday, dropping below 158.00 during the Asian session as the US Dollar slumps to a one-month low amid heightened political uncertainty after early US midterm vote counts. Moreover, the prospect of gridlock in Washington drives safe-haven flows, triggering a fresh leg down in US bond yields and further weighing on the buck.

Gold clings to gains near weekly top, comfortably above $4,000 as US elections hit USD

Gold clings to strong intraday gains near the weekly high, trading comfortably above the $4,000 psychological mark during early European session amid a broadly weaker US Dollar. Democrats’ wins in the House and Senate raise the prospect of gridlock in Washington. Moreover, heightened political uncertainty drove investors to safe-haven assets, exerting downward pressure on US bond yields. This is seen weighing on the Greenback and supporting the precious metal.

Bitcoin tests critical support, Ethereum struggles below resistance, XRP extends losses

Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) remain under pressure on Wednesday as bearish momentum continues to weigh on prices. BTC approaches key support around $76,466, and a decisive close below could open the door to deeper losses. Meanwhile, ETH struggles below key resistance while XRP faces rejection at the upper trendline of a falling channel pattern, all hinting at deeper losses.

US Dollar Index dives to late September lows near 101.25 on US election results

The US Dollar Index, which tracks the Greenback against a basket of currencies, comes under intense selling pressure during the Asian session on Wednesday, dropping to its lowest level since late September as early US midterm election results heightened political uncertainty.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.