Dollar Weakness Persists

Over the last 24hours, our prop desk has closed out a long cable position and a long DAX position, both recording meaningful profits. Short US equity index trades are also still being held, whilst a foray into long AUD/CHF is yielding results, too.

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With the long weekend looming, the temptation today may well be to keep de-risking positions, although Donald Trump effectively talked some heat out of the greenback during yesterday’s session, so further weakness here may be reliant on the data. There’s a raft of fundamentals set for release today with some of Friday’s prints being published early and with there being a real risk that US PPI could tip into negative territory, there’s certainly the potential for volatility to persist in the near term.

Fundamental Analysis – Dollar Weakness Persists

Yesterday’s comments by Donald Trump that the dollar was getting too strong appeared to have the desired effect on the currency, with the greenback tumbling against the Euro at the start of the Asian session. There’s some speculation that the downside pressures may not be sustainable from jawboning alone, but combined with the current swing into risk-off trades and the questions that are mounting over the new US administration’s ability to deliver against campaign promises and the sell-off certainly looks warranted. As we move into next week, the looming French election may take the shine off the Euro, but the theme of dollar weakness could run for a little while longer yet.

The US PPI reading for March is due for release at 12.30pm GMT today and there’s a risk this could dip into negative territory. Again this would heap pressure on the Trump administration - and arguably call into question the Federal Reserve’s ability to keep hiking interest rates over the coming months. USD/JPY is already down at close to five-month lows having made a brief foray below 109 during the Asian session. Further weakness could well be seen here if that PPI print adds cause to concern, especially given the Yen’s safe haven allure.

Crude retreated marginally yesterday in the wake of a report showing US production reaching its highest level in over a year, but this is already looking o have been short lived. There’s ongoing speculation that Saudi Arabia will keep lobbying for those production quotas we saw brought in at the start of the year, whilst the risk of conflict in the Middle East should also see prices finding support.

Donald Trump’s talking down of the dollar has done little to lend any real support to US equity markets with the S&P again finding support around the 2340 level. Any desire to de-risk running into the weekend break could push equity indices lower still, although as noted above if the Fed’s ability to tighten monetary policy is called into question then this may be sufficient to offer stocks something of a reprieve – even if there is a push to de-risk going into the long weekend.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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