Good morning

The USD strikes back, part XXXVVVIII.

Surely that says it all and I can stop writing now!!!

Reuters reported late yesterday that central bankers have started to question and challenge ECB Pres. Draghi’s leadership style. Draghi has been pushing monetary stimulus, though the degree of stimulus could stop (potentially slowing the EUR rout). The sources point to Draghi’s talk of enlarging the balance sheet by around a trillion EUR’s that was not agreed upon. They went further to point out that Draghi’s predecessor, Jean-Claude Trichet,  had a more open style. It would appear that the Germans prefer Trichet’s German style in handling inflation more than they oppose Draghi’s style. “Jean-Claude used to consult and communicate more, He worked a lot to build consensus,” in other words according to the Germans, he listened to them. This sent the EUR up from 1.2520 to 1.2570, though this mini pull back was short lived and with Europe coming in the EURUSD has been sold back to yesterday’s open of 1.2510 (as I write this).

In other news, German Chancellor Merkel said “Euro-zone economy has not developed as we would have wished due to internal factors and geopolitical reasons; no reason to remove economic sanctions against Russia; in long term we want to restore good relations with Russia; seeing continued stable domestic demand in Germany; situation in Euro-zone is still extremely fragile despite some progress; it is wrong to pit austerity against growth.” Ms Merkel is the consummate politician and I am sure she would like nothing more than to see relations with Russia restored to normality and see the EU LESS RELIANT on Germany to restore economic growth. I am afraid to say, neither are in her power to change though friendly coercion will go along way. In the mean-time I am afraid to say the EUR will continue to stare down the barrel of the shotgun.

After falling back yesterday to 113.17, USDJPY has resumed its sell off trading up to 114.50, levels last seen in November 2007. The fall out has set a 115.00 handle in JPY traders crosshairs. EURJPY has exploded over the past 2 weeks rising from 135.25 to trade currently at 143.25. As I said above, it is really all about the USD.

China services PMI came out weaker overnight at 52.90 from 53.50 sending AUDUSD into another bout of selling breaking through the psychological 0.8700 barrier. Trading just below for now, the AUD looks like it has more room to fall especially given the USD’s resurgence.

Following up from our prediction a few weeks ago, Gold  fell sharply this morning as the USD soared in the wake of U.S. midterm results (Republicans are BACK) posting a $20 loss. Closing at $1168, Gold has fallen to $1148 and our prediction of $1025 now seems a REAL possibility. In other words, this is not over by a long shot.

USDILS was trading sideways today at 3.7940. The shekel has gained some ground after being at its weakest in two years against the USD last week, and briefly breaking through the 3.8000 barrier. USDILS has weakened slightly from 3.7850 yesterday, and it would appear that the strength of the USD could push the ILS back over 3.8000 opening up the next target at 3.8150. In line with the ILS, the ZAR, TRY, MXN etc have all retreated this morning in line with expectations and in my opinion, there is more to come.

Last but not least, GBPUSD as mentioned yesterday found it almost impossible to remain above 1.6000 and has since fallen in line with the USD rally to 1.5950 with 1.5925 the next target before we break through into the 1.5800 handle. EURGBP fell back late yesterday trading up to 0.7860 (1.2720) before settling back. EURGBP is not really in the spotlight with all eyes on the USD.

Have a good day and good luck