Dollar bulls set to continue their run


  • The dollar bulls are on the run once more as the ducks all seem to be lining up in a row for an end of year rate hike for the Fed. Hawkish preparatory comments from FOMC members continue and this is helping to underpin the dollar. Furthermore, if the polls and debates are anything to go by in the race to the White House, Hillary Clinton seems to be emerging as a clear leader. If this turns out to be the case after the voting closes on 8th November, the dollar would again be boosted. The boost should also be seen through general market risk appetite too. This victory for continuity and stability would also help to pave the way for the Fed to hike rates at the final FOMC meeting of the year on 14th The impact of a Fed rate hike may not be easy to predict but at least the run up should be fairly positive for sentiment.

dollar bulls

  • The Presidential Election appears to be moving Hillary’s way and that is positive for the dollar and market risk appetite. She is the continuity candidate and seen as being the candidate that would help to provide stability. The dollar strengthens when positive news surrounding Hillary’s campaign comes out. Trump needed to have a stellar second debate, but despite the mud-slinging he was unable to rile Clinton and she was again deemed to be the victor. At least that is what the polls are suggesting in the wake of the scandal over the Trump video and House Speaker Paul Ryan’s denouncement with some suggesting as much as an 11 point lead for Clinton over her main rival. This is not cut and dry yet, but the markets do seem to be positioned squarely for a Clinton Presidency. Trump would bring uncertainty, safe haven flow, volatility on the dollar (with likely weakness) and negative risk sentiment. These are all factors that are currently not being seen.
  • The US dollar strength is coming again as the market continues to price in a Fed rate hike in December. The slightly weaker Non-farm Payrolls have done little to derail expectations. Treasury yields are pushing ever higher, the US yield curve is steepening and the US Dollar Trader Weighted Index is pushing out to test the July resistance at 97.57. Dollar/Yen is close to testing its September resistance at 104.30 again, Euro/Dollar has finally broken below the long term pivot at $1.1100, NZD/USD and AUD/USD are under pressure and then of course there is the continued decline of Cable. For now the dollar is going from strength to strength and is a move that needs to be backed in the near to medium term.

US trade weighted

  • Sterling is having a horrific time of it. Concerns that both sides in what will eventually become the post Article 50 negotiations are setting their stalls out for a “hard Brexit” are really hitting sentiment. The flash crash last Friday is unlikely to be the end of the selling pressure either. There is almost no support now for Sterling either, which will not help traders either if there is a breach of a very tentative support from last Friday at $1.2223. I derived a $1.2150 target from the original breakdown below $1.2800 but the consistent run into new 31 year lows shows little sign of stopping right now. $1.2000 is perfectly possible as a round number target too, however other targets of $1.1500 and $1.1000 have also be suggested. It may be a crowded trade, but with the way the flash crash would have cleared out many lower lying contrarians it is difficult to see who would be brave enough to take the other side of the trade right now.
  • The oil price is also in a good moment, with the positive momentum driven from the OPEC production cut helped now by Russia also agreeing to freeze or perhaps even cut. This has driven prices to (on WTI) and above (on Brent Crude) their June highs. Can the move be sustained? The concern will come when the words need to be backed up by actions. These oil producers are still in a battle for market share and there is a benefit to them from “cheating” on production. That might be for the coming months, but for now oil is pulling higher and corrections are being bought into.
  • Sentiment on equities has been helped by the positive run on oil and the improved standing of Hillary Clinton in the polls. FTSE 100 is the big news though with the run higher driven by weakness on Sterling. Sterling has today broken out to a new all time high above 7122. The longer sterling falls there is little reason not to back a FTSE 100 move higher. However I would see this as short term optimism. I would stop short of calling it a rally built on a base of shifting sands, but the rally is not on firm ground. You would want to see revenue growth supported by earnings that are now driven purely from currency translation. This leaves me somewhat cautious of the longevity of the move.
  • It is a quiet week for economic data so the focus will be on the Fed meeting minutes and US Retail Sales on Friday. This will be an interesting set of FOMC minutes as despite a swathe of hawkish comments in the run up to the last meeting, there were only three members voting for a hike. Assessment of the outlook for inflation and growth will be key and the dollar could be sensitive. US Retail Sales is a tier one data point and despite the weaker payrolls report, the market will be looking for a pick up after a disappointing retail sales number last month, whilst the improvement in Consumer Confidence recently should also help. Again the dollar will be sensitive. On Thursday morning the China trade balance will be looked at for risk sentiment however, forecasts suggest that the recent improving trends of imports and exports are ready to take a little turn for the worse again. This could also help to drive the dollar strength.
  • Watch for: FOMC meeting minutes, China trade, US Retail Sales



EUR/USD – A break below $1.1050 would confirm bear control

  • The euro has been holding up admirably in front of recent dollar strength but the move is becoming too much and the dollar bulls are winning the day now. Positive news for Clinton and hawkish Fed rhetoric is helping to pull a breakdown on EUR/USD. Watch for the September FOMC minutes with some volatility.
  • The long term pivot at $1.1100 has been supportive but a closing breakout would be a negative move. A confirmation below $1.1050 would open $1.0950 and then around $1.0800. Rallies are increasingly being sold into.
  • Watch for: FOMC meeting minutes, US Retail Sales

GBP/USD – “Hard Brexit” fears driving sterling ever lower

  • Any reports that point to a hard Brexit are killing sterling right now. The concern is that this is coming amidst a stronger dollar and the double whammy means sterling is moving ever further into new 31 year lows.
  • Take aside the thin market of Friday morning that drove the volatility spike to $1.1450 (on my Reuters charts) and Cable continues to fall. The support at $1.2223 was a brief low as the market looked to stabilise but momentum is incredibly bearish an rallies are being sold into. A breach of $1.2223 opens my target minimum target of $1.2150 but then also a Fibonacci projection technical target from the break below $1.2800 can also give you a 100% target of $1.1260.
  • Watch for: Brexit news, FOMC meeting minutes, US Retail Sales

USD/JPY – A breakout above 104.30 is bullish

  • The BoJ may be extending their inflation target period into 2018 and that means a continuation of accommodative monetary policy, but it is the dollar strength and risk appetite from the Presidential race that is impacting the pair right now.
  • The resistance at 104.30 is key as this is the first key resistance tested within the old downtrend. A breach really makes a statement by the bulls and would open the upside towards 105.50 and possibly 107.50. Corrections are being bought into now, with 102.80 an increasingly important support once the breakout is seen.
  • Watch for: FOMC meeting minutes, US Retail Sales

Gold – Selling into strength continues  

  • Gold is under pressure. The dollar strength of recent weeks continues and with Clinton’s prospects in the Presidential race faring better, the demand for safe havens has waned. However this is coming to the time of year with Indian wedding season approaching that physical demand could pick up and this may help to support the price.
  • Technically the break below $1300 implies $1225 and the rallies are still being sold into. Momentum indicators are increasingly negative and the bears are in control. A closing breach of $1251 would re-open the downside with little real support then until $1200. A pullback rally is yet to be seen but the bulls would struggle with the overhead supply of the resistance around $1300 now.
  • Watch for: FOMC meeting minutes, US Retail Sales

Oil – Volatile, choppy but support should be underpinned for now

  • The Russians backing the OPEC production cut has helped to boost the price for now. This may in time prove to be a false dawn but for now the buyers are happy to accept these oil producers at their word. EIA inventories continue to show surprise drawdowns, but how long will this continue with the price rising again and US production bottoming?
  • WTI is testing the resistance of the June high at $51.67 but if Brent Crude is anything to go by then the market should be able to overcome it. WTI would then open the old resistance band $56.50/$62.60. Beyond minor resistance on Brent Crude at $54.30 the way would be open towards $60.
  • Watch for: News on production levels, EIA Oil Inventories

Indices – S&P and DAX still range as FTSE 100 soars    

  • S&P 500 – Wall Street is into earnings season which will begin to have an impact on market direction. However the range play continues for now with the resistance of the all-time high at 2194 still in play.
  • DAX Xetra – The DAX is still an underperformer and traders may be looking to Deutsche Bank as a factor. Technically the resistance overhead between 10,7000/10,800 remains a key barrier.
  • FTSE 100 – The sterling weakness is bullish for the FTSE and gains into all-time highs has been seen. The longer the sterling weakness continues FTSE 100 should be underpinned Support at 7000 now protects the key previous breakout level at 6955.

Economc Calendar


Wednesday 12th October

  • US – JOLTS job openings
  • US – FOMC meeting minutes (September)

Thursday 13th October

  • China – Trade Balance
  • US – Weekly Jobless Claims
  • US – Crude Oil Inventories

Friday 14th October

  • China – CPI & PPI
  • US – Retail Sales
  • US – PPI
  • US – Michigan Sentiment



Monday 17th October

  • US – Empire State Manufacturing
  • US – Industrial Production & Capacity Utilization
  • New Zealand – CPI

Tuesday 18th October

  • UK – CPI
  • US – CPI
  • US – NAHB Housing Market Index

Wednesday 19th October

  • China – GDP
  • China – Industrial Production
  • China – Retail Sales
  • UK – Unemployment & average weekly earnings
  • US – Building Permits & Housing Starts
  • Canada – Bank of Canada monetary policy
  • US – EIA Crude Oil Inventories

Thursday 20th October

  • Australia – Unemployment
  • UK – Retail Sales
  • Eurozone – European Central Bank monetary policy
  • US – Weekly Jobless Claims
  • US – Philly Fed manufacturing
  • US – Existing Home Sales

Friday 21st October

  • Canada – CPI

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