Dollar Higher as Risk Appetite Vanishes

The US dollar appreciated versus most major pairs on Friday. The Japanese yen outperformed the greenback as a safe haven, but all other major currencies suffered heavy losses during the week. Tense trade developments between China and the US and Friday’s drop in the Turkish lira dragged emerging and developed markets lower as US sanctions were doubled. Geopolitics drowned out most of the impact of economic releases with US inflation hitting a new high and Canadian part time jobs driving a drop in the unemployment rate.

  • Turkish lira fell more than 20 percent in a week
  • US retail sales to remain subdued
  • UK retail sales to show more evidence of solid summer

European Bank Exposure to Turkey Hits EUR

The EUR/USD lost 1.2 percent in the last five days. The single currency is trading at 1.1398, with the pair looking to fall further after breaking through the 1.14 barrier. The economic calendar does not feature major events in Europe and with current geopolitical tension the single currency remains vulnerable against the safe haven dollar.



US inflation is 2.94 percent, and with core inflation is back to 2008 levels at 2.4 percent the case for two more rate hikes by the U.S. Federal Reserve this year remains strong. The monetary policy divergence between the European Central Bank (ECB) and the U.S. Federal Reserve has been a factor, but remains in the background as geopolitical forces have proven to have a bigger impact in 2018.

Italian, Spanish and French banks are reported to have loans worth $150 billion in Turkey. The falling Turkish lira will make those loans denominated in foreign currency harder to repay which is why the EUR has touched record lows on Friday. The European stock market has already witnessed a sell off of financial institutions.

Turkey President Erdogan was defiant and called for the population to defend the currency by selling their US dollars and gold holdings instead of trying to open a dialogue with the US regarding steel tariffs.

Loonie Grounded Despite Strong Jobs Report

The USD/CAD gained 0.77 percent during the week. The Canadian dollar is lower on Friday. The USD/CAD is trading at 1.3145. Statistics Canada released a stronger than expected employment report with a huge gain of 54,100 jobs driving the unemployment rate down to 5.8 percent in July. The loonie failed to gain momentum from that economic indicator release given the current geopolitical climate.


Canadian dollar weekly graph August 6, 2018

A flight to safety from investors has given a boost to traditional safe havens like the JPY, CHF, USD and gold. The Turkish lira has been in free fall and has triggered contagion fears as Spain, Italy and France have high exposures.

The strong jobs report adds to the probability the Bank of Canada (BoC) will hike the benchmark interest rate one more time in 2018. The BoC raised its overnight target rate to 1.50 percent on July 11 with the growth of the economy picking up for a follow up rate hike in October.

The Canadian currency was lifted by the solid jobs report, but not enough to send the loonie into the black on Friday. The indicator comes during a tense trading environment where risk appetite is subdued. 

Pound Lower on Brexit Despite Strong GDP Numbers

The GBP/USD lost 1.64 percent in the last five days. The currency pair is trading at 1.2755 near a one year low after no deal Brexit probabilities rose. The divorce negotiations between the UK and the EU have been short on positives with an 8 month period to sort out a lot of tough negotiations.



The market has priced in the scenario of the UK exiting the single market with no trade deal in place. The ball is back on the government of Theresa May to come up with a package that not only satisfies supporters at home, but more importantly is acceptable for the EU. So far that balancing act has not been achieved and has put the leadership of Theresa May into question with an almost imminent vote of confidence in the near term.

The decision of the Bank of England (BoE) to lift rates last week was unanimous, but it could end up being the only pro-active decision by the central bank in 2018 as it heads into reactive territory.

Yen Keeps Up With Dollar in Turbulent Times

The USD/JPY lost 0.51 percent during the last five trading sessions. The currency pair is trading at 110.59. The Japanese currency has appreciated but it has done so less than other times of uncertainty in the market. The use of economic sanctions by the Trump administration was a recurring theme this week causing high volatility in emerging markets.



The JPY continues to trade in a tight range despite the global uncertainty but the safe haven appeal of the currency has set it apart from other Asian currencies that have depreciated as trade war concerns rise.

Market events to watch this week:

Tuesday, August 14
4:30am GBP Average Earnings Index 3m/y
9:30pm AUD Wage Price Index q/q
Wednesday, August 15
4:30am GBP CPI y/y
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:30am USD Crude Oil Inventories
9:30pm AUD Employment Change
Thursday, August 16
4:30am GBP Retail Sales m/m
8:30am USD Building Permits
7:30pm AUD RBA Gov Lowe Speaks
Friday, August 17
8:30am CAD CPI m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

USD/CAD plummets on Canadian jobs report

Canadian jobs market is on fire

By the numbers:

  • Canada Jul Net Jobs +54,100 From Jun
  • Canada Jul Net Jobs Forecast At +17,000
  • Canada Jul Full-Time Jobs -28,000; Part-Time +82,000
  • Canada Jul Jobless Rate 5.8%; Jun 6.0%
  • Canada Jul Jobless Rate Forecast At 5.9%
  • Canada Jul Avg Hourly Wages +3.2% From Year Ago
  • Canada Labor Force +19,100 In Jul From Jun
  • Canada Jul Participation Rate At 65.4% Vs 65.5% In Jun
  • Job creation flew by market expectations in July as large gains in part-time and public sector positions helped push down the unemployment rate by two-tenths.

    Canada added a net +54.1K jobs in July on a seasonally adjusted basis. The market was looking for a net gain of +17K.

    Canada’s new jobless rate fell to +5.8% in July, down from +6% in June. The market was looking for an unemployment rate of +5.9%.

    The loonie is off from its intraday low of C$1.3122 and currently trading C$1.3062 immediately after the release.

    Turkey investors take a bath

    Today’s sharp slide in the Turkish lira (currently down -6% at $5.9446, but was down -15% at $6.200 at one point) has obviously seeped through into broader financial markets, causing the USD and JPY to jump on safe haven flows and equities to fall, while the EUR (€1.1469) is stung by concerns over European banks’ exposure to Turkey.

    Today’s dramatic drop was instigated by a Financial Times report that the European Central Bank (ECB) is examining the Turkish exposure of several of the region’s banks.

    “The ECB’s banking watchdog is monitoring the situation in Turkey and is in contact with eurozone banks about their individual exposures to the country.”

    Nevertheless, it’s believed that the level of overall exposure of European banks to Turkey remains limited.

    Note: Three banks named in the piece tumbled, with Spain’s Banco Bilbao Vizcaya Argentaria SA falling 3.5%, Italy’s UniCredit SpA down 3.2% and France’s BNP Paribas SA down 3.8%.

    The markets biggest concern is whether President Erdogan is threatening the independence of the Central Bank of the Republic of Turkey (CBRT).

    The central bank left interest rates unchanged last month, and the belief is that political pressure is keeping the central bank from taking the necessary steps.

    Now the train of thought is that an emergency interest rate hikes during this current currency crisis might only provide fleeting relief. They are expected to raise interest rates over the next week or two.

    The market is currently waiting for Turkey’s Finance Minister to unveil their new economic model – odd’s are it will do nothing to stem the tide of negativity towards emerging market currencies at the moment.

    Some other emerging-market currencies also weakened, with the ZAR ($13.8964 up +1.6%) and the Hungarian forint ($281.68 up +1.3%) both tumbling. The Russian ruble (RUB) has also hot a new two-year low this morning at $67.1518.

    Canada: New Housing Price Index, June 2018

    New home prices increased in June, marking the first upward movement since November 2017.

    New Housing Price Index, monthly change

    Nationally, new house prices edged up 0.1% in June, largely due to rising construction costs across the country. The cost of softwood lumber, which is widely used in residential construction, has been on the rise. According to the Industrial Product Price Index, the price of softwood lumber (except tongue and groove and other edge worked lumber) rose 34.3% year over year in June.

    Among the 11 surveyed census metropolitan areas (CMAs) reporting growth in June, the largest increases were in Montréal (+1.0%) and Ottawa (+0.7%). Builders in both markets linked the gains to rising construction and land development costs. Other notable rises occurred in St. Catharines–Niagara (+0.5%) and Greater Sudbury (+0.4%).

    In the west, prices for new homes were up in Calgary (+0.3%), Edmonton (+0.2%) and Vancouver (+0.2%). The increase in Vancouver follows five months of flat prices.

    Six CMAs reported declines in June, with Oshawa (-0.3%) registering the largest decrease.

    New home prices were unchanged in Toronto in June. Prices in this market have been flat or declining since November 2017.

    New Housing Price Index, 12-month change

    New house prices rose 0.8% year over year in June. The largest 12-month gains were in Ottawa (+5.0%) and London (+4.8%).

    Among the four CMAs reporting declines, Toronto (-1.3%) and Regina (-1.2%) recorded the largest 12-month decreases.

    StatsCanada

    U.S Producer Price Indexes – July 2018

    The Producer Price Index for final demand was unchanged in July, seasonally adjusted, the U.S.
    Bureau of Labor Statistics reported today. Final demand prices advanced 0.3 percent in June and
    0.5 percent in May. (See table A.) On an unadjusted basis, the final demand index increased 3.3
    percent for the 12 months ended in July.

    In July, a 0.1-percent rise in the index for final demand goods offset a 0.1-percent decline in
    prices for final demand services.

    The index for final demand less foods, energy, and trade services moved up 0.3 percent in July,
    the same as in June. For the 12 months ended in July, prices for final demand less foods, energy,
    and trade services climbed 2.8 percent.

    Final Demand

    Final demand goods: The index for final demand goods inched up 0.1 percent in July, the same as
    in June. The July advance in prices for final demand goods can be traced to a 0.3-percent rise in the
    index for final demand goods less foods and energy. In contrast, prices for final demand energy fell
    0.5 percent, and the index for final demand foods decreased 0.1 percent.

    Product detail: In July, a major factor in the increase in prices for final demand goods was the index
    for pharmaceutical preparations, which rose 0.7 percent. Prices for eggs for fresh use, fresh fruits and
    melons, motor vehicles, and liquefied petroleum gas also moved higher. Conversely, the electric
    power index fell 1.6 percent. Prices for meats; hay, hayseeds, and oilseeds; and nonferrous scrap also
    decreased. (See table 4.)

    Final demand services: Prices for final demand services edged down 0.1 percent in July, the first
    decline since falling 0.2 percent in December 2017. The July decrease is attributable to the index for
    final demand trade services, which moved down 0.8 percent. (Trade indexes measure changes in
    margins received by wholesalers and retailers.) In contrast, prices for final demand services less
    trade, transportation, and warehousing and the index for final demand transportation and
    warehousing services advanced 0.3 percent.

    Product detail: Leading the July decline in prices for final demand services, margins for fuels and
    lubricants retailing dropped 12.7 percent. The indexes for machinery and equipment parts and
    supplies wholesaling, food retailing, hospital outpatient care, and airline passenger services also
    moved lower. Conversely, prices for guestroom rental climbed 3.9 percent. The indexes for apparel,
    jewelry, footwear, and accessories retailing; inpatient care; and truck transportation of freight also
    increased.

    U.S Bureau of Labor statistics

    U.S unemployment insurance weekly claims

    In the week ending August 4, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 6,000 from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 218,000 to 219,000. The 4-week moving average was 214,250, a decrease of 500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 214,500 to 214,750.

    The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending July 28, unchanged from the previous week’s unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending July 28 was 1,755,000, an increase of 29,000 from the previous week’s revised level. The previous week’s level was revised up 2,000 from 1,724,000 to 1,726,000. The 4-week moving average was 1,745,250, an increase of 3,000 from the previous week’s revised average. The previous week’s average was revised up by 500 from 1,741,750 to 1,742,250.

    Read more Department of Labor

    Turkish lira loses another 3%

    Thursday August 9: Five things the markets are talking about

    The geopolitical tension theme continues to dominate capital markets, now that China has responded to the U.S’s tariff onslaught with additional tariffs of its own.

    In currencies, the market is again focused on sterling (£1.2852) as it encroaches on its new 12-month low as politics continues to provide the overriding direction for the currency.

    And then there is the Turkish lira ($5.4210) as it makes it way towards record lows on market worries about President Erodgan’s grip on monetary policy and on a deepening dispute with the Trump administration.

    Down-under, the kiwi (NZ$0.6645) has plummeted to a two-year low after the Reserve Bank of New Zealand (RBNZ) pushed out its forecast for a rate increase.

    Elsewhere, oil has extended its drop as trade tensions again overshadow a decline in U.S crude stockpiles. Most industrial metals gained, while gold prices ease.

    1. Stocks mixed reaction on low volumes

    In Japan, the Nikkei edged lower overnight as a stronger yen (¥111.00) impeded investor risk appetite. Not helping was the auto sector, which saw a sell-off on news that certain automakers improperly conducted vehicle inspections in the domestic market. The Nikkei share average dropped -0.2%, while the broader Topix lost -0.3%.

    Down-under, Aussie shares rallied overnight on a stronger earnings season. The S&P/ASX 200 index rose +0.5%. In S. Korea, the Kospi stock index produced a small gain, rallying +0.10%.

    In Hong Kong and China, shares ended higher as tech firms rally on hopes of China policy boost. The Hang Seng index was up +0.88%, while the Hang Seng China Enterprises index rose +1.09%. In China, the Shanghai Composite index ended +1.9% higher, while China’s blue-chip CSI300 index closed up +2.5%.

    In Europe, regional bourses are trading mostly lower in quite trading. U.S stocks are set to open little changed.

    Indices: Stoxx600 -0.2% at 388.8, FTSE -0.6% at 7729, DAX 0.0% at 12633, CAC-40 -0.2% at 5492, IBEX-35 0.0% at 9755, FTSE MIB +0.0% at 21801, SMI -0.3% at 9149 S&P 500 Futures 0.1%

    2. Oil finds some support after a -3% drop Wednesday, gold steady

    Oil prices are a tad higher after yesterdays steep slide, when the first round of U.S sanctions against Iran came into effect. Not providing much support is investor worries that crude demand will and has been hit by the escalating Sino-U.S trade dispute.

    Brent crude futures are up +14c at +$72.42 barrel, after having dropped by more than -3% yesterday. U.S crude futures (WTI) have rallied +8c to +$67.02 a barrel, having closed down -3.2% Wednesday.

    With U.S sanctions against Iran, which shipped out +3M bpd of crude in July, officially came into effect on Tuesday and the market is anticipating that supply losses could range from +600K to +1.5M bpd.

    Stateside yesterday, the weekly EIA report showed that crude inventories fell -1.4M barrels last week, less than half the -3.3M barrel draw the market had expected and that gas stocks rose by +2.9M barrels, compared with expectations for a drop of -1.7M barrel drop.

    Ahead of the U.S open, gold prices are mostly steady in a range-bound overnight session, as a stronger dollar continues to weigh on upside momentum. Spot gold is up +0.1% at +$1,214.23 an ounce, having gained +0.2% Wednesday.

    3. RBNZ Extra Cautious

    Reserve Bank of New Zealand (RBNZ) Governor Orr left interest unchanged at +1.75% as expected, while moving the timing of any future increase to Q4 in 2020 from Q1 in the same year.

    Assistant Governor McDermott indicated that the chance of a rate cut had increased and wanted the market to understand that they needed to see core-inflation above +2% for any rate hike. The direction of the next move could be “up or down,” he says. The cautious comments saw the NZD ($0.6650) weaken by -0.45% outright.

    Elsewhere, the yield on 10-year Treasuries decreased -1 bps to +2.95%. In Germany, the 10-year Bund yield dipped -2 bps to +0.39%, while in the U.K, the 10-year Gilt yield also declined -2 bps to +1.299%.

    4. Turkish lira loses another 3% outright

    The Turkish lira has hit a new record low this morning as it weakens as much as -3% outright on souring relations with the U.S over the detention of an American pastor. USD/TRY is last up +2.3% at $5.3994, after it hit a record high of $5.4488 earlier.

    EUR/USD (€1.1596) is holding below the €1.16 level as the techies continue to watch their significant support level at €1.15. A break opens the door for a possible test to €1.10 handle.

    GBP (£1.2890) remains on the softer side on a ‘no-deal’ Brexit worries. The pair tested its 11-month low atop of £1.2850 earlier this morning.

    USD/JPY (¥111.14) is a tad higher, but stable ahead of the U.S-Japan trade talks that begin in Washington later today.

    RUB ($65.88) is weaker by -1%, testing its two-year low outright following the U.S State Department announcement on Russian sanctions related to a chemical agent being used in a U.K spy attack last March.

    5. ECB economic bulletin highlight

    According to the ECB in its regular economic bulletin released earlier this morning, the risks to global growth are growing.

    “Downside risks to the global economy have intensified amid actions and threats regarding trade tariff increases by the United States and possible retaliation by the affected countries,” the ECB said in an assessment.

    The ECB added that if all the threatened measures were to be implemented, the average U.S tariff rate would rise to levels not seen in the last 50-years.

    Note: A fortnight ago, the ECB kept policy unchanged, staying on course to end its QE program by the close of the year and to raise rates for the first time since the euro zone debt crisis in the autumn of 2019.

    Forex heatmap

    Saudi Arabia sells off Canadian assets, loonie falls

    It’s being reported by FT that the Saudi’s are selling off Canadian assets in response to Ottawa’s criticism of the arrest of a female activist last week.

    Apparently, the Saudi central bank and state pension funds have been instructed to dispose of their Canadian equities, bonds and cash holdings.

    There is no Canadian dollar amount being proposed, but its believed that Saudi funds have in excess of +$100B invested in overseas markets. Canada’s proportion should be a small percentage.

    The loonie has been offered since yesterday, currently trading a tad shy of C$1.3100, down -0.3% at C$1.3082.

    Currently, markets have been looking at Canada’s recent economic strength and wondering if Bank of Canada (BoC) is on target to hike rates at next months policy meeting.

    Last weeks Canada’s GDP and Trade balance reports beat markets expectations and give CAD/USD a lift to C$1.2967 on Aug 3. Given Governor Poloz’s commitment to moving gradually and his concern over the economy’s sensitivity to rate rises, a September move is becoming more remote, especially without a signed Nafta deal.

    Canadian employment

    Friday’s Canadian employment numbers should have an impact, especially if we get another strong headline print – +18Ke vs. +31.5K for June. Many are also expecting the unemployment rate to improve a tad to +5.9% vs. +6%.

    Politics takes down the pound

    Wednesday August 8: Five things the markets are talking about

    Trade concerns continue to hover over capital markets. Yesterday, the U.S indicated that it will begin imposing another +25% duties on an additional +$16B in Chinese imports beginning in a fortnight. On the first go around, China swore to retaliate, they have yet to give specifics, but at the very least, it will be an in-kind retaliation.

    Data overnight showed that China’s exports grew faster than expected last month and imports surged, which suggest that the “ongoing” trade war has yet to have a material impact on the worlds second largest economy’s bottom line.

    Nevertheless, the prospects for a full blown trade war has the U.S dollar remaining better bid on pullbacks in a relative tight summer range.

    Sovereign yields, further out the curve, trade a tad higher as dealers make room to take down today’s record amount of 10-year Treasury debt worth +$26B, and an all-time high of +$18B in 30-year bonds tomorrow.

    In currencies, the market is focused on sterling (£1.2904) as it encroaches on its 11-month low as politics continues to provide the overriding direction for the currency. And then there is the Turkish lira ($5.2923) as it makes it way towards record lows on market worries about President Erodgan’s grip on monetary policy.

    On tap: The Reserve Bank of New Zealand’s (RBNZ) official cash rate decision and monetary policy statement is due this afternoon (05:00 pm EDT). No change in rates or accompanying statement is expected.

    1. Stocks mixed overnight session

    In Japan, the Nikkei edged lower overnight as the market waits for the start of U.S-Japan trade talks. Will the U.S be taking a hard stance, similar to that of China and Europe? Both the Nikkei and broader Topix ended -0.1% lower.

    Down-under, Aussie shares rallied overnight, with financials higher after reporting a smaller fall in profit than expected, and while miners gained on strong import data from China. The benchmark S&P/ASX 200 index rose +0.2%, erasing most of Tuesday’s losses. In S. Korea, the Kospi index rose modestly, closing out 0.06% higher.

    In Hong Kong, shares rise on tech and energy boost, but fears of a deeper trade war is capping gains. At close of trade, the Hang Seng index was up + 0.39%, while the Hang Seng China Enterprises index rose +0.32%. In China, the Shanghai Composite index closed down -1.23% while its blue-chip CSI300 index ended down -1.59% mostly on profit taking after Tuesday stellar session.

    In Europe, regional bourses trade mostly lower, pressured generally by weaker earnings out of Europe.

    U.S stocks are set to open little changed (+0.0%).

    Indices: Stoxx600 -0.2% at 389.8, FTSE +0.3% at 7742, DAX -0.2% at 12627, CAC-40 -0.1% at 5517, IBEX-35 -0.10% at 9762, FTSE MIB +0.0% at 21863, SMI -0.4% at 9167 S&P 500 Futures 0.0%

    2. Oil dips on weak China imports, but sanctions and weak U.S stocks support

    Oil prices have dipped a tad overnight, pressured by Chinese weaker import data, although the market remains well supported on pull backs by falling U.S crude inventories and the introduction of sanctions against Iran.

    Brent crude oil futures are at +$74.50 per barrel, down -15c, or -0.2% from Tuesday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$69.15 per barrel, down -2c.

    Data shows that China’s July crude oil imports recovered slightly last month after falling for the previous two-months, but are still amongst the lowest due to a drop-off in demand from the independent Chinese refineries.

    With U.S sanctions against Iran, which shipped out +3M bpd of crude in July, officially came into effect yesterday midnight and the market is anticipating that supply losses could range from +600K to +1.5M bpd.

    Dealers are also focusing on the U.S market, where yesterday’s API data showed that crude inventories fell by -6M barrels in the week to Aug. 3 to +407.2M.

    The market will take its cues from today’s EIA inventory report (10:30 am EDT).

    Ahead of the U.S open, gold prices are better bid, supported by a mixed U.S dollar. Spot gold is up +0.2% to +$1,213.02 an ounce, after rising +0.4% in Tuesday’s session.

    3. Sovereign yields could back up further

    Yesterday, the U.S Treasury Department sold +$34B three-year notes and it was the largest three-year auction in eight-years. Later today, the Treasury will sell a record amount of 10-year debt worth +$26B (1:01 pm EDT) and tomorrow an all-time high of +$18B in 30-year bonds. With so many products on offer, dealers are expected to again cheapen up the curve to make room ahead of the deadline.

    The yield on 10-year Treasuries has rallied +1 bps to +2.97%, while Germany’s 10-year bund yield is holding steady at +0.403%. In the U.K, the 10-year Gilt yield has rallied +1 bps to +1.314%.

    4. Sterling’s Wild West

    Trading GBP/USD (£1.2903) is proving to be a bit like the Wild West – unpredictable – the pound is again threatening to penetrate yesterday’s record 12-month low now that its failed to benefit from last week’s Bank of England rate rise. Markets are now turning their attention to the Brexit process, which will likely dominate trends in GBP for the remainder of this year.

    The Turkish lira ($5.2920) has recovered some lost ground after plummeting to new record lows Monday ($5.42), helped by the Central Bank of the Republic of Turkey (CBRT) announcing a cut in the foreign exchange reserve requirement ratio (RRR) for commercial banks, a measure which should boost dollar liquidity. However, this week’s necessary course of action reaffirms the central banks reluctance to hike rates. Nevertheless, the plunge in the currency over the past few weeks is now on a scale, which has, in the past, prompted the CBRT to hike interest rates aggressively.

    Will the CBRT hike the repo rate this week? They need to, but will they dare defy President Recep Tayyip Erdogan?

    Note: A Turkish delegation is visiting Washington this week to discuss the friction between both countries. But the U.S has stated that they remain at odds on its core demand that Turkey free American an evangelical pastor.

    5. China’s trade balance tightens

    Data overnight showed that China’s trade surplus narrowed sharply in July, with imports surging as trade tensions with the U.S escalated.

    China reported a trade surplus of +$28.05B in July, compared with a surplus of +$41.61B in June. The market was expecting a surplus of +$39.10B.

    Digging deeper, exports rose +12.2% y/y, following June’s +11.3% increase. The market was looking for a +10% growth number.

    Imports were up +27.3% in July y/y, accelerating from a +14.1% increase the previous month.

    China’s trade surplus with the U.S. narrowed to +$28.09B in July from a record monthly high of +$28.90B in June.

    Forex heatmap

    Cannot keep the ‘big’ dollar down

    The European and Asian sessions were happy to book ‘long’ dollar profits, but North America has decided to renew their acquaintance with the dollar bulls.

    A lack of major economic data releases and a stabilizing Chinese yuan overnight provided a temporary reprieve for risk assets and EM currencies.

    Another strong JOLTS jobs opening report (+6.66M) has provided the dollar some early support, enabling it to retrace some of its overnight losses.

    Sterling’s Wild West

    Trading GBP/USD (£1.2943) is proving to be a bit like the Wild West – unpredictable – the pound is again threatening to penetrate yesterday’s record 12-month low now that its failed to benefit from last week’s Bank of England rate rise. Markets are now turning their attention to the Brexit process, which will likely dominate trends in GBP for the remainder of this year.

    Loonie failing to fly

    USD/CAD (C$1.3020) is another early looser against the dollar, despite crude oil prices remaining better bid now that the U.S has re-introduced sanctions against oil exporter Iran that is expected to tighten global supply.

    The loonie has lost some appeal with the Can Ivey July PMI producing a disappointing headline (61.8 vs. 64.2). Dollar bulls want to see C$1.3040 break before adding to their ‘short’ CAD positions again.

    Turkish lira takes a bath

    The Turkish lira ($5.2492) has recovered some lost ground after plummeting to new record lows yesterday ($5.42), helped by the Central Bank of the Republic of Turkey (CBRT) announcing a cut in the foreign exchange reserve requirement ratio (RRR) for commercial banks, a measure which should boost dollar liquidity. Turkish 10-year bond yields have backed up +25 bps to +20%.

    Yesterday’s necessary course of action reaffirms the central banks reluctance to hike rates.

    However, the plunge in the currency over the past few weeks is now on a scale, which has, in the past, prompted the CBRT to hike interest rates aggressively. Will the CBRT hike the repo rate this week? They need to, but will they dare defy President Recep Tayyip Erdogan?

    With little economic data to hang your hat on, low volumes and market participation, most investors prefer to wait for a significant breakout in any of the G7 pairs before participating with any gusto.