Re-writing the dollar rules

March 27, 2015

Yesterday was a strong indicator of the changing dynamic in FX markets, in that we saw the dollar weaker even when stocks were on the back-foot and political tensions in the Middle East were escalating. We moved away from the “risk-on/risk-off” world seen in the wake of the global financial crisis and the dollar was weaker despite these twin forces that in the past would have propelled the dollar higher. Since then, we’ve seen the dollar recover, with the dollar index bouncing off trend line support early in the day. On the charts, it’s sterling that is taking the brunt of the early dollar buying, cable touching the 1.48 level, with EURUSD also under pressure just above 1.08. Once again, the dollar is caught between consolidation and correction, which is likely to mean a choppy end to the week in terms of trading.

The points to note on the data calendar are the GDP data in the US at 12:30 GMT, together with Michigan Sentiment data at 14:00 GMT. BoE Governor Carney speaks early on, as does BoE’s Broadbent as well. Overnight, we’ve seen inflation data in Japan moderate on the headline and underlying measures, at 2.2% and 2.0% respectively. We also saw the unemployment rate fall to 3.5%. Wages remain the main issue for Japan and despite this low unemployment rate, with cash wages rising, but still not yet on a sustained basis.

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