Saturday May 7, 2016 - 10:31:48 GMT
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Dollar Uncouples From News
John M. Bland, MBA, CTA
Correlations Break down
The past two weeks have been a curious period in the forex market with the EURUSD making a virtually uninterrupted run from 1.1220 (April 22) to 1.1615 (May 3) and then back almost straight down to the 1.1400 line (1.1385 May 5), a 50% retracement. This is one of the first times in over four decades in this business that I have seen such strong and persistent price moves with no clear explanation for them. We have been scratching our heads trying to figure out what is afoot and have surmised that there must be significant capital flow(s) at work. Sometimes it takes a detective to figure out what is going on in the forex markets, and sometimes you never really learn what was going on. Keep tuned.
April U.S. non-farm payroll data grew by a disappointing +160K. Many on the street had been looking for an increase in excess of +200K in the month. The unemployment rate remained steady at 5.00%. The key Average hourly earnings figure advanced by +0.30% from a downwardly revised +0.20% in March. These data effectively take a June rate hike off the table. In normal circumstances, this would have been bad news for the USD.
Current Market Conditions
The recent disconnect between economic data and the forex market continued in the latest week. I don't feel this state of affairs can last for long. As mentioned earlier, all we can figure is that there are capital flows at work unrelated directly to economic activity. Funds could be flowing out of the EUR into USD for safe-haven reasons or due to a longer term redeployment of investments. We will figure out what is behind these flows in time. It appears to us that the Bank of Japan continues to be active in trying to contain the value of the JPY against the USD with carefully timed rounds of forex intervention buying the USDJPY on weakness. We see no reason why this activity should abate anytime soon.
WEEKLY HIGH IMPACT NEWS:
12:30 CH- CPI
01:30 CN- CPI
08:30 GB- Trade
08:30 GB- Output
14:30 US- Crude
17:00 US- 10-yr Auction
11:00 GB- Bank of England
12:30 US- Weekly Jobless
09:00 EZ- GDP
12:30 US- Retail Sales
12:30 US- PPI
14:00 US- University of Michigan
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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