The crowded dollar

November 17, 2015

The dollar looks to be in control in the early part of the week. This is evident on EURUSD where we are not that far from the lows see mid-March of this year at 1.0458 should the current downward trend be continued. The move on USDJPY puts it close to last week’s high of 123.60, whilst USDCAD is slowly working its way towards the late Sep high of 1.3457. The latest BAML Fund Manager survey showed long USD as the most perceived crowded trade at present, on the basis of the anticipated Fed tightening and expected further measures from the ECB early next month. ECB Board Member Praet provided the latest insight with his comments overnight, suggesting that the credibility of the ECB has been undermined given its persistent inability to judge how long it will take inflation to return to target. The only debate seems to be exactly what measures will be introduced in just over 2 weeks time.

The other story is the oil price, where we are just above fresh lows for the year. For inflation readings, we will start seeing headline rates move up in the early part of next year as the sharp fall late 2014 falls out of the YoY calculations, but these latest price dynamics will limit the extent to which headline inflation picks up. The UK CPI numbers, seen at 09:30 GMT today, are likely to show continued negative readings on the headline rate, with the core rate seen holding steady at 1.0%. PPI data is also released at the same time, which continue to show deflationary forces in the pipeline. Note that US CPI data is also released later today at 13:30 GMT, where the core rate is seen steady at 1.9%, headline nudging slightly higher to 0.1% (from 0.0%). Finally, ZEW data for Germany and the Eurozone will be of modest interest at 10:00 GMT.

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