The USD index hit a new 4-year high of 86.218!!! I should just leave it there as that statement says it all.
What can be written that has not already been said over and over again. The USD trend remains strong, resilient and most of all persistent. Whenever we think there might be a pull back it falls flat and fails to materialise. Speculation grows unabated that the US economy is improving at such a pace that the FED will HAVE REASON to INCREASE interest rates sooner than the market anticipates. How many more times can I say this (I would like to think I was first)…rates WILL RISE in late Q1 early Q2 2015 (probably the former). While FED futures say something else you cannot escape the strong numbers we are witnessing on a daily basis. Non-Farm payrolls on Friday will re-confirm what we already know, the US is coming back strong beating all expectations. The fact is reader, when the US gets stronger the world gets stronger. Fact!!!
The EUR fell Tuesday and hit a fresh two-year trough. Data showed EU annual inflation cooled to 0.3 percent in September from 0.4%, intensifying the case for the ECB to offer more stimulus. The common currency fell as far as $1.2570 before managing a bounce above to $1.26 level. The euro lost 3.82 percent in September – its biggest decline in over two years. More importantly since JUNE WHEN PARITYFX CALLED FOR THE EUR DEMISE, the EUR has lost 9.13% and counting!! The ECB is forecast to hold interest rates at its meeting tomorrow, after unexpectedly dropping them to record lows back on the 4th Sept. Still, Draghi said last week policy makers “stand ready to use additional unconventional instruments” if necessary. He had better start using these instruments or face an even greater collapse. Having said that and having said this previously, Draghi is probably rubbing his hands in glee watching the EUR fall. After all he openly admitted the EUR (at 1.35) was too strong and needed to fall to make European goods more attractive internationally. You REAP WHAT YOU SOW.
USDJPY broke the psychological barrier at 110 (high 110.07) with the BOJ spokesman commenting “the weak Yen needs to be monitored”. As if!! You honestly think they will stand in the way of a moving freight train? I think not my dear reader. Like the EUR, it pays to have a weaker currency considering the importance of the export market to the Japanese economy.
Australia’s AUD slid to an eight-month low after retail sales grew less than economists forecast. The Aussie slid versus most of its 16 major peers after the statistics bureau said retail sales grew 0.1% in August, compared with the median forecast for a 0.4%. The Aussie fell to 0.8663, the weakest since 24th January 2014. Home prices in Australia’s capitals rose only marginally in September, slowing after three straight months of strong gains, with five of eight cities recording falls in the month. The slowdown should actually be welcomed by the RBA which recently has become concerned that a surge in borrowing to buy investment properties could lift prices to unsustainable levels.
USDZAR continues to track the weaker EUR trading at the days low of 11.3365 given that the EU is SA’s biggest trading partner. Coupled with a fall in GOLD (AGAIN PARITYFX CALLED THE DROP FROM $1240) the ZAR will feel the pinch and trade in line with the EUR. EEMEA currencies will in all likelihood feel the heat (even more) from a strong USD as investors switch out of risky EM trades to safer G7 trades.
GBPUSD really has not recovered after the Scottish Referendum. While initially rising to 1.6530 it has been one way traffic trading around 1.6200 and if I am completely honest I think we have seen the back of a strong GBP (vs. the USD) and we should now accept that it will trade, while not necessarily as bad as the EUR, in line with the hunger to hold USD. Vs. the EUR the GBP continues to shine trading through the psychological 0.7800 (1.2820) barrier currently trading around 0.7780 (1.2855). As noted previously we are looking for a short term target of 0.7700 (1.2987-1.3000).
Last but not least, my TARGET for EURUSD remains 1.2000 for year end with 1.2500 the next big psychological level.
Have a great day ahead