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What's Feeding The Weakness In The Dollar

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Posted by Martin Armstrong - Armstrong Economics

on Wednesday, 02 August 2017 08:26

Trump-DownTrump & Chaos

US President Donald Trump may be a good businessman, but in politics, he just does not get it. Politics is all about ego and back-stabbing. It is not about logic and the art of the deal. After just ten days in the office, Trump’s communications chief, Anthony Scaramucci has been forced to resign. The Chief of Staff John Kelly demanded a clean new start and and that meant the dismissal of Scaramucci. This last week had caused a lot of trouble, when Scaramucci attacked the now dismissed Reince Priebus and Trump’s chief Steve Bannon with vulgar words. Trump is under pressure, because he has not implemented many announced projects so far. He is kept spinning around in circles fighting things like gays in the military creating so many new wars and hatred alienating support for projects he promised like tax reform.

So far, Trump is a man who does listen, but he is also a man who is very much his own. He is out of his league in politics. This is not about the best deal for the country. This is indeed more than a swamp – it is an entire ocean of corruption and self-interest. Negotiating a business deal is a one on one arrangement with each having a self-interest. This is a multi headed beast with no possible way of confronting on so many levels simultaneously for every politicians has his own self-interest, which has nothing to do with the good of the nation. Trump has to STOP creating so many new wars and stop the personal tweeting to get even. Just get on with the tax reform before it is too late or he will find himself losing support from the people in 2018.

It has been this downturn in Trump’s administration that feeds the weakness of the dollar.

....also from Martin: 

Our European Tour – Part II – Seizing All Bank Accounts Throughout EU

 

 



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Currency

Chart View: GBP/JPY and EUR/USD...

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Posted by Jack Crooks - Currency Currents

on Tuesday, 01 August 2017 16:18

Quotable

“Good tests kill flawed theories; we remain alive to guess again.” --Karl Popper

Commentary & Analysis

GBP/JPY the risk trade?

The chart below shows cross-rate for the British pound versus the Japanese yen (GBP/JPY). Short this pair is our favorite trade should we finally get some risk (aka risk-off) flowing into this market (global stock sell-off). 

Screen Shot 2017-08-01 at 3.36.18 PM

And in the chart below you can see how GBP/JPY has moved relative to S&P 500 stock and Nikkei 225 stock index. The yen plays a safe-haven role when risk rises. So, if risk flows into the market we would expect the yen to act relatively strong compared to the rest of the currency pack. And if risk rises, the UK economy looks vulnerable. And increasing concern about the UK economy, in this still low inflation world would suggest traders might further push out any BOE rate hike expectations; likely weakening the pound. 



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Currency

European Turmoil

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Posted by Martin Armstrong - Armstrong Economics

on Tuesday, 01 August 2017 07:08

Behind-Curtain-Models-1024x683 Our European Tour:

"Pulling back the curtain reveals very increasing movements in capital. While the Euro rallies against the dollar, the yields in the German are rising while the Treasuries have been declining. This has shown that big money is looking at the Euro rally with tremendous skepticism and are still shifting to US Treasuries as domestic share prices also fall." 

Our European Tour this season has been very enlightening including meetings with politicians, corporations and many of the top banks. The concern centers around the ECB having to change policy with regard to negative interest rates. The net result has been to create massive hoarding of cash rather than spending cash for the sake of just spending. The banks were hopeful that a rise in rates will bring the money pouring back in for deposits. The real concern has been that the authorities are hard on the big banks while ignoring the small banks. This is true even in Germany, for the lending on real estate in Europe has been extensive and the credit has been questionable although the lending limit on property is running about 80%. However, the income requirement is not stringent and if rates begin to rise, the fear is there may be set in motion a real estate crisis in Europe similar to the S&L Crisis in the States.

Clearly, the big concerns have been that all the economic theories are turning to dust. Nearly 10 years of quantitative easing has utterly failed to reverse course and the banks are most vulnerable in Southern Europe namely in Greece, Italy, and Spain. The understanding of inflation has collapsed as has the quantity of money theory and the notion that when interest rates rose, the stock market should have dropped. All of these theories still taught in school have crumbled to dust in the real world and people are more and more reaching out for help and explanations other than opinion. Where’s the research? They say.

MAA-Euro-TourThe funds management industry is also in turmoil with the new regulations coming in shortly and the costs rising tremendously. Funds cannot afford to be in cash because of the negative yield so they have been forced into the share markets but not for the reason of outright bullishness. They simply cannot stand on the sidelines for now being in cash costs money in Europe. Many have turned to the dollar simply because there has been no alternative.

Pulling back the curtain reveals very increasing movements in capital. While the Euro rallies against the dollar, the yields in the German are rising while the Treasuries have been declining. This has shown that big money is looking at the Euro rally with tremendous skepticism and are still shifting to US Treasuries as domestic share prices also fall.

If the ECB finally begins to raise rates, then some money will flow back to Europe and into the banks. But this will be a short-lived trend. The underlying conditions are not stable and the core industry that supports Germany is the car industry. This witch-hunt going after diesel has the potential of seriously harming the Germany economy. If the attack on the auto industry continues, this will seriously impact the European economy as a whole.

Americans tend to ignore this because diesel cars are rare in the States. In Britain, about 50% of new car sales have been diesel and government encouraged people to buy diesel because they believed the fake research that diesel was cleaner than gasoline. The whole diesel scandal is very big in Europe and this has the risk of undermining the core of the German economy. The rumor is that Audi is having trouble. Audi must recall 24,000 cars due to a new instance of software manipulation resulting in excess pollution.

....also from Martin:

Market Talk- July 31, 2017

 

 



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Currency

The Week Ahead: Is it time to buy the U.S. dollar?

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Posted by Hussein Sayed - Chief Market Strategist (Gulf & MENA)

on Monday, 31 July 2017 06:41

shutterstock 176284139 1Six months ago it was hard to believe that the Greenback will be plummeting against all of its major peers. Back then the Fed was the only central bank tightening monetary policy, economic data was very supportive and most importantly Trump’s expected policies of cutting taxes as well as spending on infrastructure were meant to push the dollar higher. The USD index peaked on 3rd Jan and since then it was moving in a down trend with declines exceeding 10%.

President Trump blamed himself for the dollar strength. He stated that it is the confidence in him causing the dollar to surge. Six months into his presidency has already passed without any significant legislative achievement and not even the ‘skinny repeal’ of Obamacare. Investors are apparently growing more concerned that his administration will not be able to agree on the rest of his agenda which is a clear sign that markets have lost the claimed confidence.

Although the U.S. GDP growth more than doubled in Q2 compared to Q1, the 2.6% expansion could not support the dollar as it came slightly short of expectations. The Federal reserve also acknowledged that the balance sheet normalization would begin relatively soon, and one more rate hike still on the table this year. Still the USD continued to slide as investors remained skeptical of another rate hike in 2017 with CME’s Fedwatch indicating only a 46.8% chance of a rate hike in December.

Despite my belief that the U.S. dollar will remain weak for the rest of the year, all metric shows that the USD is massively oversold and will likely receive a little bounce from current levels. Friday’s nonfarm payrolls will be crucial for the USD and if data did not disappoint we are likely to see a bounce. However, the headline figure will not be as important as wage growth. Wage growth has been a major factor dragging inflation levels recently and accordingly a print of 0.3% or higher is required for the dollar to come back. Traders will likely position their trades before the NFP release. Thus it is important to monitor ISM manufacturing and non-manufacturing along with the ADP release.

It is also an important week for Sterling with the Bank of England meeting on Thursday. After three MPC members voted for an immediate rate hike in June, followed by Hawkish statements from Carney and Haldane, markets started pricing in a rate hike in August. However, data was not supportive enough and inflation pulled further away from the danger zone of 3% which will most likely keep the BoE on hold for now. The base scenario for the meeting is to keep rates and asset purchase unchanged but the message from Carney and the tone of the quarterly inflation report will play a major role in GBP’s next move. If more than two members voted in favor of a rate hike and Carney continued to deliver hawkish messages, we might see the pound rallying towards 1.33.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.



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Currency

Will USD/CAD Drop Further?

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Posted by Nadia Simmons & Przemyslaw Radomski - Sunshine Profits

on Thursday, 27 July 2017 09:20

2017-07-27-USDCADWeekly

Yesterday, the greenback extended losses against the Canadian dollar, which resulted in a drop below the May 2016 low. Does it mean that the way to lower levels is open?

In our opinion the following forex trading positions are justified - summary:



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