Dollar Dumped? Not Quite. Early Gaps all Closed

Market Drivers March 04, 2019
Market fades all dollar weakness
UK PMI Construction in recession
Nikkei 1.02% Dax 0.14%
Oil $56/bbl
Gold $1287oz.

Europe and Asia:
AUD AU Building Permits 2.5% vs. 0.0
GBP UK PMI Construction 49.5 vs. 50.3
EUE EZ Sentix -2.2 vs. -3.1

North America:
USD Construction Spending 8:30

The dollar tumbled at the start of week’s trade on news that US-China talks were near agreement and comments by President Trump seeking a weaker currency. However, the selling did not last and by London open the greenback regained it strength filling all the opening gaps.

Over the weekend US-China negotiators suggested that much progress had been achieved in the talks and the contours of a deal were starting to materialize. It appears that US will lift all sanctions against Chinese goods in return for Chinese buying greater quantity of US exports. It’s still not clear what agreements will be made on intellectual property issues or US’s ability to do business on the ground – the two far more important matters that remain unresolved.

Still, the markets took the news to heart rallying commodity currencies hard with Aussie spiking to .7108 and kiwi rising to .6827. But the euphoria soon faded as a patch of weaker than economic data from Asia and Australia dampened investors spirits.

Many analysts, including yours, truly have made the point about a massive disconnect between the euphoria in the risk markets and the decidedly downbeat economic news on the ground. The economic surprise index is now at a five year low and equity and high beta currencies can’t coast on easy monetary policy forever.

This week may be set up as a resolution to this conflict with a slew of economic data hitting the screens throughout the week. No doubt the bulls are trying to look past the wobble in Q4 of last year and are betting on the rebound as we enter spring. So far, however, aside from improved sentiment surveys few signs of actual economic pick up exist and the longer that trend persists the bigger the probability of risk-off flows which will bring with them a dollar rally, much to the chagrin of the President.