Has Dollar Sentiment Turned?

Market Drivers November 19, 2018
Barnier suggest UK extend til 2022
Dollar remains offered
Nikkei 0.65% Dax 0.55%
Oil $57/bbl
Gold $1219/oz.
Bitcoin $5300

Europe and Asia:
EUR CA 17B vs. 23B

North America:
No Data
The FX markets were generally sedate on the first trading day of the week, but the dollar was weaker across the board with the exception of commodity dollars which retraced some of the outsized gains made Friday.

Traders were still digesting the words of Vice Chair Richard Clarida who noted on Friday that the global economy was slowing and that the Fed may need to decelerate its pace of rate hikes in 2019. The dovish tone took the market by surprise as it was the first unambiguous acknowledgment by a Fed official that growth may have peaked. Up to now US monetary authorities have been resolutely hawkish in their outlook suggesting that rates will increase by 25bp per quarter for the foreseeable future.

Mr. Clarinda’s more cautious tone was a first sign that US monetary policy may turn to neutral sooner rather than later and USDJPY continued to feel the downward pressure with the pair trading near session lows for most of the night as shorts tried ro press the break of the 112.50 level.

Meanwhile, despite lingering political problems across the pond, both EURUSD and GBPUSD remained well bid as anti-dollar flows trumped geopolitics. Although the rebellion against Theresa May appeared to have gathered steam with opponents having gathered 42 out of 48 letters needed for a no-confidence vote, cable remained nonplussed rising to a high of 1.2880 in morning London dealing.

Although a no-confidence vote would no doubt create more turmoil in UK politics, it may also usher in a general election and a call for a second referendum as the current chaos may force the UK public to rethink the issue of Brexit altogether. In the meantime, the Europeans continue to play the long game with Barnier offering to let UK remain in EU through 2022 as parties continue to negotiate. The gesture may have been made in good faith, but it also has the added benefit of locking UK in EU for another three years and the thinking amongst the EU officials is by that time the extraction will only be harder.

With no data on the docket today and US markets in a semi-holiday mood this Thanksgiving week dealing is likely to be subdued, Barring any further headlines from UK, FX will likely take its cue from equity moves and stocks start to weaken as the day proceed the dollar will as well.