Talking Points:

Dollar’s 11th Week Advance Looking Troubled as Fed Commentary Mixed
Euro Tumbles after ECB President Draghi Reiterates Easing Commitment
British Pound: Traders Await BoE Gov Carney’s First Post-Referendum Speech

Dollar’s 11th Week Advance Looking Troubled as Fed Commentary Mixed

Eleven straight weeks. That is the bullish run that the US Dollar is trying to secure with a positive close through Friday. The 10th consecutive advance won this past week was already a record move for the US Dollar. Looking at it from a statistical perspective alone, this is an exceptional occurrence that insinuates that we are stretched. However, the difference between an enduring trend and an ‘extreme’ position is the quality and consistency of its fundamental support. On that front, a combination of favorable winds combined to keep the greenback moving higher. That said, the cumulative support looks to be losing its pace. The nascent swell in volatility and retreat in global equity indexes was cut off this past session as speculative bears failed to tip the scales and contented bulls refused to capitulate on the market’s long-held complacency. Ultimately, the day of reckoning on risk exposure will come from mass deleveraging, but there is little interest in being the first to throw in the towel when one’s neighbor keeps picking up pennies…even if the steamroller is dangerously close.

Far more integral to the greenback’s sustained climb is a relatively hawkish monetary policy bearing. The operative word here is ‘relatively’. The Fed’s first move is still seen in 2015 – consensus places it somewhere around the middle of the year – but this isn’t the precursor to wave of hikes that drives the benchmark yield sharply higher in a short amount of time. Yet, as moderate as this flight path is historically; most of its largest counterparts are moving in the opposite direction. And, that accommodative shift comes within a similarly disparate economic backdrop. Where the US growth outlook is temperate, it is still steady in its expansion unlike the Eurozone, China and Japan. Data like this past session’s six-year high in August new home sales and the upcoming September PMI figures can feed that theme.

The climb the dollar has made to this point has been both robust in its momentum and its fundamental support, however, drive on the dollar’s side may cool if the balance of the fed’s view continues to moderate. This past session, we had a mix of hawks and doves once again. Loretta Mester maintained a moderately hawkish tone while Charles Evans delivered his exceptionally dovish views. Perhaps more interesting though was the airtime afforded New York Fed President William Dudley’s comments that the currency was a consideration via its impact on inflation. In the end, markets have the final say; and both a 5-year and 2-year floating rate note Treasury auction show rate hike expectations.

Euro Tumbles after ECB President Draghi Reiterates Easing Commitment

EURUSD is close to a moving to its lowest levels since November 2012. Through the past session, the Euro dropped against all but the Swiss Franc following a disappointing showing on the economic docket and cautionary comments from ECB President Draghi. For data, the German business sentiment survey (IFO) dropped a fifth month to a 12-month low and the Bank of Spain warned on its economic outlook. Perhaps sensing doubt over the commitment to ease, Draghi reiterated ‘whatever is necessary’. He will speak again today.

British Pound: Traders Await BoE Gov Carney’s First Post-Referendum Speech

Last week’s Scottish Referendum vote offered a significant relief for the Pound. However, there hasn’t been much of a relief rally. The Sterling has been unburdened, but that doesn’t naturally translate into a bullish outlook. Progress now falls to fundamental drive for what matters most to the currency – in other words: rate forecasts. Data today includes a proprietary retail sales report (CBI) and the Hometrack housing inflation report. The real interest though is in what BoE Governor Carney says. Heading into it, the 12-month BoE rate forecast is currently 56 bps.

New Zealand Dollar: RBNZ Governor Wheeler Uses the ‘I’ Word – Intervention

Though he didn’t threaten it outright, RBNZ Governor Graeme Wheeler put the crosshairs on the New Zealand dollar. In a statement, the central bank said the Kiwi’s still-high exchange rate was unjustifiable and unsustainable. He also said he expects it to drop further. Where the market really cares was the remark that ‘unsustainbility’ could make intervention feasible. Yet, it should be noted the RBNZ intervened a few times in the not-too-distant past. And the outcome was feeble. If the NZDUSD wasn’t already in a bear trend, these comments would have fallen flat.

Japanese Yen: USDJPY Returns to Multi-Year Highs as Inflation Data Approaches

USDJPY may yet close out this week in the green – which would stretch the currency pair’s run to a seventh straight week. The Yen crosses were buffeted by the rebound in equities, but the commitment between the two looked materially different (yen crosses more restrained). Ahead, we have Japan inflation figures. We should also keep a watchful eye on Abe remarks on future tax increases.

Emerging Market: Russian Ruble and Brazilian Real Surge

A general rebound in ‘risk’ was good occasion for the MSCI Emerging Market ETF to jump. Yet, this should not be viewed as a reversal as much as it is a reprieve. In the FX ranks, the biggest moves on the day would come from the Brazilian Real which rallied 1.2 percent and the Russian Ruble up 1.1 percent versus the USD. It should be noted these among the two worst hit EM currencies these past months…

Gold On Cusp of Setting 2014 Low as ETF Demand Hits New Five-Year Low

Another tentative recovery effort was cut off after just a single day. Gold slipped 0.5 percent this past session as total ETF holdings of the precious metal dropped to a fresh 5-year low of 54.38 million ounces. Speculative demand continues to deflate with silver (a cheaper speculative counterpart) trickling lower and volatility rising. The IMF reported EM countries increased holdings last month, but that hasn’t halted the slide.

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