20150429 – OUTSIDE MONTH…

High Low High Low
EUR/USD 1.0989 1.0959 USD/ZAR 11.8912 11.8020
GBP/USD 1.5381 1.5327 GBP/ZAR 18.25 18.10
EUR/GBP 0.7162 0.7136 USD/RUB 52.48 51.27
USD/JPY 118.98 118.75 USD/NGN 199.2 198.0
GBP/CHF 1.4707 1.4623 S&P 500 2,119 2,115
USD/ILS 3.8677 3.8475 Oil (Brent) 64.74 64.18


The dollar is much weaker this morning, indeed April has been as poor a month for the greenback as any since September 2013. We are hovering near 2 month lows with the FOMC policy meeting this evening. Let’s be under no illusions, this is more about a dollar correction than a strengthening of the euro, pound sterling… or frankly pick A.N Other currency! But as I’ve suggested in the recent past, an 11 month trend should result in a corrective/ trendless market that lasts 3 to 4 months. If you wanted proof of this, then the weaker than expected UK GDP numbers yesterday are a case in point. British year on year GDP growth was 2.4%, which was weaker than the forecast 2.6% and much weaker than the prior reading of 3.0%. Looking at the numbers it looks to be primarily weakness in the construction sector, but this can be volatile and certainly Q1 is not known for booming activity in the building sector anyway. The point though is that we had unexpectedly poor data, and you would have expected the pound sterling to take a hit, well it did.. briefly.. but then surged to close at new highs for the day. That sort of price action tells you one of two things:


  • either people really want to own pound sterling,
  • or they own too many dollars.


You don’t have to be Sherlock Holmes to work out that this is about the dollar which has been performing poorly against most currencies in recent weeks, even less liquid emerging market ones! I’ll finish with one more point, a technical observation if you will, an analytical skill dear to my heart… if GBP/USD closes the month of April above 1.5430, a deeper US dollar correction may be in store for us. In technical analysis circles we describe that sort of phenomenon as an ‘outside month’, rest assured we will let you know if this occurs.


Later on today we get US GDP data published as well as the aforementioned FOMC policy meeting. US growth continues to look solid, with employment conditions continuing to tighten. There are some signs at the margin now that forward looking measures of inflation are starting to perk up as well. I was reading a research piece last night, about a measure of US wage growth which fixes industry weights at pre-crash levels, this has the effect of boost the importance of lower paid sectors, recalculating recent wage growth data using this methodology shows wage inflation currently accelerating. This will have clear inflationary consequences both directly and and indirectly as the more poorly paid consume a greater proportion of their income. It reinforces my confidence in the sustainability of US growth, but it also sharply brings into focus what the Federal Reserve decision makers will be talking about this evening. Are they more or less likely to hike rates in the next few months? Absolutely no point speculating about it, we’ll know in a few hours. What I will be monitoring is the impact of what they say on the US dollar. If it is reasonable to describe their views as hawkish and the greenback still continues to sell off, that will confirm my concerns that dollar positioning is still at fairly extreme levels.


Not much else to report, risk sentiment looks a tad less impulsive and bullish than in the recent past… I guess even QE can start to look like old news after a while. The story remains US dollar weakness though and how long this paradigm will last










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