USD starts a week on a weaker foot

19 December, 2016

The USD opened the week with losses, seen mainly against the yen as leveraged and macro funds locked in profits gained since Donald Trump’s election victory. The dollar index weakened as Treasury yields retreated from their highest in more than two years. The yen gained for a second day, with investors potentially cautious about getting caught off guard as the Bank of Japan begins a two-day policy meeting amid the biggest yen short position in a year. Some analysts also pointed to China’s seizure of a U.S. underwater drone as potentially spurring demand for safe-haven assets such as Treasuries and the yen.

However a trend on the US dollar is clear and apparent but it will take a further rally in USD bond yields along the curve in order to take the dollar higher. USDJPY looks increasingly interesting. There has been a massive squeeze on positioning on JPY. Shorts on JPY are builiding up while long contracts have dramatically fallen. We wrote that the debt market is absolutely crucial for USDJPY. FED managed to push yields higher, BOJ struggles to keep JGB yields at relatively low level. Therefore a spread surged.

IFO survey (based on responses from around 7000 German firms)  ended a year on a positive note. Sentiment distinctly improved, confidence rose even more that in November and also  came above the consensus (111.0 against 110.4 in November and 110.6 expected). DAX moved distinctly higher after the release and continues to move within the current bullish trend,.


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