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Another Tuesday Turnaround

by Stephen Casey | August 23, 2016

Good morning. Another Tuesday turnaround is in play this morning, as yesterday’s dollar gains have all been wiped out with a few days before the Jackson Hole symposium. Over the weekend, some hawkish comments from Fed Vice Chairman Stanley Fischer allowed for some profit taking on Monday, as the greenback enjoyed a nice bounce after three straight days of post-Fed minutes declines. Coupled with oil’s three percent slip, foreign exchange markets parted like the red sea for the resurgent dollar. Those gains were short-lived though, as riskier currencies shot higher on Tuesday, rising with global equities a mere seventy-two hours before Janet Yellen’s hotly anticipated Wyoming remarks. The data calendar is light this week so positioning takes a more important role for foreign exchange markets closing out what was a very quiet summer period.

The euro came within ten pips overnight of marking its best move since the June Brexit referendum. Sterling is rising as well, as short covering drives the currency higher and could be marking a strong technical breakout to higher levels. The European slate was guided by French manufacturing and services production figures, which bested expectations for the month of August. This morning’s numbers continue to support the argument that mainland Europe is surviving any Brexit fallout, and specifically France is performing well after months of terrorist attacks. German private sector growth slowed down in August, but remains comfortably vigorous this summer, good signs from the euro-area’s largest economy. Policy speak guided price action in Asia, as the BoJ’s Kuroda and the RBNZ’s Wheeler addressed markets. Speaking at a FinTech conference in Tokyo, Mr. Kuroda echoed old claims the central bank has sufficient time to enact new policy measures. The yen is moving a little higher as North American trade kicks off, similar to the New Zealand dollar, which was the overnight session’s biggest mover. The Kiwi-dollar climbed overnight as Gov. Wheeler preached patience on policy. The Reserve Bank cut rates by 25 basis points to 2% at their last meeting on August 10th.

As early reported, the US dollar mounted a nice little comeback on Monday. Supported by Mr. Fischer’s weekend comments, traders had an excuse to lock in some profit and trim positions ahead of Friday’s Jackson Hole speeches. Speaking at the Aspen Institute in Aspen, Colorado over the weekend, the Fed Vice-Chairman noted a 2016 rate hike is still on the cards as the domestic economy approaches their own targets warranting a move. Top tier economic data releases is back loaded this week as jobless claims, durable goods orders and Q2 GDP revisions roll out over Thursday and Friday. The greenback’s gains were short in nature, as yesterday’s moves were wiped out on Tuesday. This morning, investors will get another peek under the hood of the American housing market. It is expected that 580k new homes were sold last month, after it was reported 592k new homes were sold in June. As employment and stable inflation remain lynchpins for Fed policy, an improving housing market could be what the Fed is looking for as they consider normalization. As of yesterday’s close, traders saw a probability of just below 50% that the FOMC will hike again in 2016.

The Canadian dollar was one of the weaker performing currencies to start the week. Oil fell by as much as 3% on Monday, which resulted in a strong bout of loonie sales. Worries over a rising U.S. oil rig count and growing Chinese fuel exports weighed heavily on crude stocks on Monday, subsequently depressing per barrel prices as well. On Monday, the Canadian buck did get a short-term boost after it was reported that wholesale sales rose 0.7% in June, besting expectations of 0.5%. The rise was brief though as investors turned back on the Fed and commodity markets. Tuesday’s bounce for the Loonie continues its recent ascent versus the greenback and other majors. The rest of the data calendar is light this week so all eyes shall remain on this weekend’s Jackson Hole remarks.


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