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Daily Commentary 13/03/15

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Dollar takes a breather after DXY hits 100 After several frantic days of astonishing moves, the dollar took a breather yesterday. It fell against all the other G10 currencies (except the pound) and most of the EM currencies that we track as well. The DXY index just poked its nose over 100 for a moment and then that was it (it’s now 99.42 as I write this morning). I doubt if the dollar rally is over, however. A bout of profit-taking after such a rapid move was natural. But there was no fundamental news to cause a reversal in the trend, nor do the technical indicate a reversal (see below), so I don’t think this move is over yet by any means. Rather, the market may just consolidate until next Wednesday’s FOMC meeting, which is likely to provide the next signpost for where the dollar goes. Note though that recently, any consolidations have proved short-lived and ended with EURUSD breaking out on the downside. So long as German seven-year bond yields are still negative and Portuguese yields are below US yields, the flood of money out of Europe is likely to continue, in my view.

US retail sales weak, but maybe due to weather Yesterday’s US retail sales figure for February was weak, but that may be due to the bad weather. Also, retail sales are reported in nominal terms, not real terms, and so low inflation will naturally depress the rise in sales.

GBP hits new low vs USD The pound was the only currency to make a new (recent) low against the dollar. Bank of England Gov. Mark Carney yesterday expressed concern about the strength of the pound, saying that its strength was one factor affecting the pace and degree of interest rate increases. Sterling interest rate eased as a result and the pound fell. Nonetheless I feel fairly optimistic about sterling, against EUR if not vs USD, as there is only a limited number of currencies that the outflow of money from Europe seeking higher yields can go into.

Oil falls further; watch for NOK, CAD Oil prices fell further, with Brent down about 1% and WTI collapsing 2.1% as US inventories rose to the highest level since weekly data started in 1982. Genscape, a company that monitors US oil inventories, said stocks at the main US oil center of Cushing, Oklahoma rose by 2.2mn barrels in the latest week. Also the Houston Ship Channel, a key conduit for US crude imports, was fully reopened Thursday morning. NOK was the best performing G10 currency over the last 24 hours but the weaker oil prices may weigh on it today. CAD also gained on the day but not so much; weaker US oil prices are bound to pressure it today, along with anticipation of a weak employment report (see below).

Today’s highlights: A relatively light day today. During the European day, the only indicator worth mentioning is the German wholesale price index for February. Although it is not a major market mover, it could add to the recent encouraging German data.

In the absence of any major European indicators, Greek concerns may come to the fore again today. Technical teams representing Greece’s international creditors are meeting with government officials today to discuss the budget ahead of next week’s negotiations on the troubled country’s fiscal targets. PM Tsipras Thursday signed an agreement with the OECD that pledges to pursue reforms in line with the country’s previous commitments, but there still seems to be some disagreement between Greece and the IMF on the tax and spending reforms to be instituted. Tsipras will hold talks with EC President Juncker and European Parliament President Schulz today.

In Canada, the main event will be the employment report for February. The forecast is for the unemployment rate to increase, while the net employment change is expected to show a decline of 5k after a rise of 35.4k in the previous month. Given the negative sentiment towards CAD, this could push USDCAD higher.

In the US, the preliminary U of M consumer sentiment index for March is expected to increase a bit from the previous month. The surveys of 1-year and 5-to-10 year inflation expectation outlook are also coming out.

As for the speakers, Bank of England Deputy Governor of Markets and Banking Minouche Shafik speaks.

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