USD Finds Short-Term Positive Flows

Narrative In Financial Markets

  • The US Dollar has been recovering some of its strength, as our RORO model shows, mainly led by an improving outlook on the economy short-term on rising US NFP, US ISM last Friday.
  • The RBA surprises the market, judging by the spike in the AUD, by sounding more neutral than one would have anticipated in light of the mounting negative fundamentals in Australia.
  • Inconsequential and light US data flow during Monday, alongside no immediate resolution in the US vs China trade negotiations, has market searching for fresh drivers.
  • German Chancellor Angela Merkel encourages key actors to resort to creative ways to unravel the present impasse on the Brexit situation between the UK and the EU.

RORO Model: Risk-On Risk-Off Conditions

For the last 2 days, micro USD+ flows have made their way back, even if the macro structures in USD/US30Y don’t yet manifest analogous conditions. Regardless, the rude health in the S&P 500 keeps the overall environment a USD-centric affair in a context of rising equities, hence prevailing ‘risk on’ conditions are still in place, which should keep the JPY on the back foot.

Yield Curve: Outlook For Growth, Inflation & Policies

The US and the Canadian Dollar are the currencies benefiting the most from the exodus in fixed income since the upbeat economic data in the US last Friday. Both countries’ government bonds are exhibiting bear steepener dynamics, which sets out a short-term positive backdrop. However, the macrostructure in both countries still carries negative connotations since the FOMC dovish turn. There has definitely been some decent recovery by both the USD, CAD as the market turns slightly more constructive short-term. Out of a bad neighborhood, looks like they are the best houses.

New Zealand bond yields, by any measure (short or long term), remain largely depressed. It’s also interesting to note that macro-wise, all countries remain in negative yield curve phases, in other words, the outlook towards tighter monetary policies is nowhere to be found.

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The Daily Edge is authored by Ivan Delgado, Head of Market Research at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth ...

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