The majority of the street found themselves with most of their eggs in the short dollar basket as ECB jawboning threw cold water on the euro rally, and hawkish Fed comments gave rise to pair back on offside dollar risk.
In the NY afternoon, Foreign Exchange Traders were busy digesting Apple’s new US campus news while attempting to project the actual repatriation impact and some incorrect calculations could have contributed to the USD correction. But with headlines suggesting that most of the proceeds are in dollar-denominated accounts, it should have minimal impact on currency markets over the near term. But at least this will make peace with the Trump administration for Apple (NASDAQ:AAPL) executives farming out iPhone production to Asia.
Interesting note from the TIC data is that China’s US treasury holding fell to the lowest level since July, so perhaps there is some truth to last weeks “Fake News” story out of China.
Oil Market Overview
WTI prices are firming up in early Asia after The American Petroleum Institute figures for the week of January 12 showed a larger-than-expected draw. The draw indeed confirms that inventories are contracting at a much quicker pace than the market anticipated and with confirmation from tomorrow's more conclusive DoE report, it would provide a substantial boost to the bullish demand side narrative.
Gold Market Overview
A weaker US dollar has primarily driven gold prices of late. And what started as a ripple of risk reduction after printing four-month highs, has morphed into a mini-correction as UST’s fell with gold and the greenback has jumped on speculation that Congress will avoid a government shutdown. Also, a more hawkish tone from Fed member Kaplan has sent UST 10’s to 2.58 %. Moreover, the Hawkish Fed rhetoric could temper near-term dollar weakness suggesting we could see a deeper correction on gold prices over the next few sessions and a period of consolidation awaiting the eventual next dollar demise.
US Equity Markets
The song remains the same. Broader equity markets surged higher with the Dow closing above 26,000 for the first time as earnings fervour takes grip, cementing investor bias that the new corporate tax code will substantially raise earnings this year.
Is Bitcoin headed for the crypt?
From its dizzying ascent to its precipitous and rapid decline over the past 48 hours, Bitcoin's retail bagholders would be well-served to keep an eye on the regulatory clampdown risks that are lurking in the shadows. Frankly, it would not be surprising to see more high profile regulators take to the airwaves after Steven Maijoor, the chair of the European Securities and Markets Authority, sounded the alarm yesterday. And It’s not too far of a stretch to assume that regulatory crypto clampdowns designed to discourage speculation in South Korea and China will spread globally.
After a massive two-day selling frenzy now comes the fear of the unknown as the nasty can always get nastier especially for those that keep buying or use similar high-risk strategies. And regardless of how much I torture the data to achieve a modicum of positivity after Bitcoin has all but halved in value since it’s meteoric rise, all roads suggest another halving in value before the falling knife pattern subsides. To say ” Bitty” remains fragile is a massive understatement as we’re little more than a cynical headline or two away from teetering on the edge of the abyss.
G-10
The Euro
With the flurry of ECB speakers upping the dovish rhetoric in the past 24 hours coupled with the Fed’s Kaplan suggesting that three hikes are his base case with risks to more and boosting the US yield curve steeper, it should be enough to temper some of the euro’s current optimism.
Indeed the euro is looking a bit toppy and choppy after the ECB pushback which should favour some long EUR risk reduction, suggesting we could enter into a period of consolidation.
Indeed, more two-way flows are coming to market trading, conditions are becoming more unsettled and price discovery is becoming a function of position risk, while speculation becomes more of a spaghetti test ahead of the SPD vote on Sunday.
The Japanese Yen
After drinking the market kool-aid earlier in the week, it became evident after the second pass at 110 yesterday that moves were becoming brief and robust dollar demand out of Tokyo below 110.50 suggested a base was forming. While dollar bearishness probably has much more room to play out over the medium term, at this time, given the strengthening yen which will trigger stronger pushback at next week's BoJ policy meeting, short dollar positions are reducing. And with the hawkish chorus of Fed speak triggering a spike in US Treasury yields, USD/JPY could pick up some near-term demand and at minimum remain firmly bid on dips.
Asia FX
The Malaysian Ringgit
With the broader USD sell-off abating on the back of higher US yields and hawkish Fed rhetoric, it suggests the ringgit market will pause for thought, and we could enter a period of consolidation awaiting the next domestic catalysts. There were some jitters in the MYR bond markets yesterday as after attempting to rally at yesterday's open the moves were met with a wave of selling, which carried throughout yesterday's session, suggesting the market was looking to trim risk. In the absence of any local bond demand, we could see USD/MYR edging higher compounded by higher US yields and a moderately stronger US dollar.