It's Not A Good Time To Buy Dollars

It's Not A Good Time To Buy Dollars

Kathy Lien  | Jan 11, 2019 04:24PM ET

Daily FX Market Roundup Jan 11, 2019

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

By Saturday, the U.S. government will be in the midst of its longest shutdown ever and while this stoppage of government activity is gripping politicians and the media, the impact on the financial markets have been limited. U.S. stocks recovered throughout the past week, volatility declined and the greenback, which fell hard at the end of the year, is stabilizing. For the most part, it was a quiet week in the markets because the US government shutdown also limited US economic releases. We heard from a number of Fed officials including central bank governor Powell and their message was clear – the economy is doing well right now but the weakness in the markets and the uncertainty abroad requires them to be patient with rate hikes. They’ll continue to reduce the balance sheet but we may not see a rate hike until the summer. While investors latched onto Powell’s comments on balance-sheet shrinkage, the main takeaway is that the economy is slowing and the Fed is retreating. All of this is reinforced by data. On Friday we learned that consumer prices declined for the first time since March, which caused annualized CPI growth to slip below 2% for the first time since August 2017. Of course this is no surprise given the sharp slide in oil and gas prices at the end of the year. We also learned that manufacturing and service activity slowed significantly. So while next week’s retail sales report could benefit from strong holiday sales, the negative outlook for the U.S. economy overall means it's not a good time to buy dollars.

Friday's worst-performing currency was the euro. It is one of the few currencies that is down against the U.S. dollar year to date. While investors may be selling US dollars, they are not moving their money into euros because the economy is weakening and the political risks are growing. The protests in France are ongoing and the latest German factory orders and industrial production reports show how the drag from global trade tensions is hurting the economy.

Sterling on the other hand was one of the best performers. It received a lift on reports that the UK could delay its March 29 exit from the European Union. Don’t be misled, however, by the strength of the currency because there’s a very good chance that Prime Minister May will lose next week’s key Brexit vote. Most MPs are expected to vote 'no' on the withdrawal agreement that she set out with the EU and the only reason this is seen as good news is because many believe that they will need to drop the deadline altogether if Parliament rejects the agreement. It's hard to say which way this will go but a 'no' vote should trigger an immediate 1% to 2% decline in GBP/USD with a recovery dependent on how quickly a plan B emerges. If the divorce date is not immediately delayed, GBP could extend its losses quickly but if they drop the deadline, we may see a relief rally. As for Plan B, May could push for a second vote, pro-EU campaigners could push hard for a second referendum or the UK could begin the process of leaving the EU with no agreement.

After falling to a 1-month low, USD/CAD rebounded on Friday as oil prices retreated. It was no surprise that the Bank of Canada left interest rates unchanged this week. The labor market is strong, the manufacturing sector is growing at a faster pace and oil prices are recovering. Still, these improvements were too new for the central bank to alter its view that future rate hikes are data dependent. We now expect to see a stronger recovery in USD/CAD ahead of what should be a weak CPI report next week. The best-performing currencies on Friday were the Australian and New Zealand dollars. Stronger-than-expected Australian retail sales and U.S.-China trade talk optimism helped lift both currencies to 3-week highs.

Kathy Lien

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Tony Teo
Tony Teo

Best time to Buy ! Whenever everybody else has been Selling'KL you were thrown a curved ball. TAKE CARE.  ... (Read More)

Jan 15, 2019 06:56PM GMT· Reply
Lefteris Papadopoulos
Lefteris Papadopoulos

It is still not good time?  ... (Read More)

Jan 13, 2019 08:59PM GMT· Reply
Timochin Khan
Timochin Khan

Excellent report...Thank you  ... (Read More)

Jan 13, 2019 02:56PM GMT· Reply
Minh Do
Minh Do

tks much  ... (Read More)

Jan 13, 2019 01:32PM GMT· Reply
Mehdi Sajwani
Mehdi Sajwani

Like reading your articles. However just wanted to know if euro & gbp will weaken then what are alternatives. Yen? CHF? After USD is might witness slowdown  ... (Read More)

Jan 13, 2019 09:59AM GMT· Reply
Amith Lulla
Amith Lulla

good analysis. will also appreciate if the yen is also covered/mentioned.  ... (Read More)

Jan 13, 2019 09:31AM GMT· Reply
ukor emmanuel
ukor emmanuel

am just a newly reading this your articles. let's see how next week goes and I will tag you as number accurate analyst... keep it up dear....  ... (Read More)

Jan 12, 2019 08:25PM GMT· Reply
Ridge Smith
Ridge Smith

is awesome Analyze   ... (Read More)

Jan 12, 2019 05:58AM GMT· Reply
Abdul Ghulam
Abdul Ghulam

thanks madam your analyses about currency pair are always great... thanks for your article .it help me lot trading forex...  ... (Read More)

Jan 12, 2019 05:49AM GMT· Reply
Mr Spriggs Speaks On
Mr Spriggs Speaks On

Thanks for the info!  ... (Read More)

Jan 12, 2019 01:33AM GMT· Reply
Juliano Santos Lima
Juliano Santos Lima

Trump is maneuvering global economy with his madman's strategy causing uncertainties on global market that make some players like China not to grow substantially keeping USA's hegemony.  ... (Read More)

Jan 11, 2019 11:31PM GMT· Reply
Aniebiet Patrick
Aniebiet Patrick

I love your write-up. A concise summary of the currencies and how they fared.   ... (Read More)

Jan 11, 2019 11:28PM GMT· Reply
Moyosore Adegbeye
Moyosore Adegbeye

thank you., your analysis are precise and they are predictive.   ... (Read More)

Jan 11, 2019 10:35PM GMT· Reply
Lefteris Papadopoulos
Lefteris Papadopoulos

Which economy is slower usa economy or europe economy more. Please be some serious you can make it  ... (Read More)

Jan 11, 2019 10:33PM GMT· Reply
Lefteris Papadopoulos
Lefteris Papadopoulos

Why you hate usd so much, or you have interest from your articles somehow.  ... (Read More)

Jan 11, 2019 10:32PM GMT· Reply
Hass me
Hass me

You're always great, thumb up   ... (Read More)

Jan 11, 2019 10:19PM GMT· Reply
Ody Anusim
Ody Anusim

She's very precise on her analysis, easy to read and understand especially for a newbie like me. Smart as a whip. keep up the good work. I will recommend your articles to anyone looking for good analysis any time. analysis, easy to ujnderst  ... (Read More)

Jan 11, 2019 10:11PM GMT· Reply
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