Wednesday, March 11, 2015

Dollar continues to rally, Euro continues to collapse

     Dollar continues to rally, Euro continues to collapse
    EUR/USD, DXY index back to levels last seen in 2003
    Particularly remarkable as US rates market has been unwinding the gains made after Friday’s payroll figure

     ECB policy, hedging is probably behind the rapid move
    Foreigners were net buyers of European assets for many years, but now are taking profits on European bonds as QE pushes them to ridiculous prices
    Any buying of European stocks is on a currency-hedged basis, so no FX impact
    Probably investors didn’t hedge for years and are now rushing to hedge, so this is adding to the trend

     China data comes in below expectations
    Retail sales, industrial production, fixed asset investment all below expectations
    AUD and NZD likely to suffer today as a result

     Today:
    Eurozone:  Four ECB board members, including Draghi, speak
    Sweden: Swedish CPI for February forecast to be unchanged yoy, SEK-positive
    UK:  Industrial production for January expected up, could be GBP-supportive

    New Zealand:  RBNZ rate decision overnight; expected to leave rates unchanged, although we look for 25 bps cut

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