Morning Commentary: For What it’s Worth

Foreign Exchange - Morning Commentary

For What it’s Worth

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David Atkinson
David Atkinson
Foreign Exchange Sales Manager
As we arrive this morning, there are similar patterns continuing to impact the markets. U.S. and global equities remain better bid and remarkably close to their all-time highs. G7 interest rates and equities diverged in the beginning of the year as the Fed pivoted toward a more dovish outlook; while interest rates remain near their recent lows, they have stabilized. Commodity prices remain better bid overall and foreign exchange is the black sheep of the group showing little direction and languishing with low volatility and narrow ranges since November.
But despite the low volatility and a general lack of direction, speculators continue to believe in a strong dollar overall but positioning reflects the nuanced changes in the markets regarding stronger equities and commodity prices. Net USD longs have now retraced 74% of the early year drawdowns of dollar long positioning, but commodity linked-currencies have generally outperformed while non-USD reserve currencies have weakened; there are exceptions in both categories however.
Regarding short currency positioning, the biggest positions are in Aussie and the euro. More modest short positions reside in Canada, Swiss franc, and the Japanese yen. New Zealand positioning is now flat after being short earlier and long positions are now occupied by the British pound, DXY, Mexican peso and Russian ruble. Time will tell how long speculators are willing to hold positions with little prospect of profitability given the low volatility and very narrow trading ranges. This is part of the reason we exercise caution in anticipating further DXY gains as the market is already positioned that way.
  • With the U.K. Parliament on recess until April 23, markets are getting a respite from Brexit headlines. The U.K. jobs report was released today and came in near expectations with 179,000 jobs created and the UR remaining near historic lows of 3.9%. Average weekly earnings did rise fractionally from 3.4% YoY to 3.5%. The British pound is slightly weaker on the session.
  • U.S. Industrial Production for March was weaker than forecast at -0.1% against expectations of a gain of 0.2%. Capacity utilization was also weaker than forecast at 78.8%. The main reason for the weakness was related to motor-vehicle output declining, adding to the signs of headwinds for manufacturing globally.
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