20150331 – USD REVS UP AGAIN

Good morning

High Low High Low
EUR/USD 1.0846 1.0772 USD/ZAR 12.1965 12.1205
GBP/USD 1.4817 1.4769 GBP/ZAR 18.02 17.92
EUR/GBP 0.7323 0.7288 USD/RUB 58.22 57.36
USD/JPY 120.37 119.94 USD/NGN 199.3 199.0
GBP/CHF 1.4353 1.4298 S&P 500 2,086 2,076
USD/ILS 3.9808 3.9543 Oil (Brent) 56.85 55.66

After talking the USD down at the last FOMC meeting Pres. Yellen of the FED must be wondering what else she can say and do to slow the USD rally and give the FED a real chance of hiking rates. I am afraid to say there are some things that just cannot be fixed this way and the market ultimately will be the one who determines how the USD fares on the international markets. And so after falling to 1.1042 (low) post FED, the USD has traded in a range before finally giving up the losses and trading sub 1.08 (EURUSD) handle as I write this. The Pres. noted that the “appropriate time” to raise rates is not yet upon us though “lift-off” may well be warranted. In other words, she is not going to pull the trigger in April (FOMC meeting 28/29th) but thereafter it is all to play for. I have stated recently that the case for a hike could come as soon as MAY, while the market is calling for a hike in September. My reasoning behind this call is the market has fully discounted a rate hike imminently, so why wait till September (if the others are to be proved correct). Surely a 0.25% hike in May/June will finally relieve us of the WHEN ARE THEY question, and we can get on with wondering when the second hike will come. Employment, GDP and Inflation (target 2%) remain the data that the Pres. is keeping a close watch on. Even if 1/3 doesn’t match up, I believe the FED will jump the gun and kick start the hiking game. One thing the FED will NOT want to do is hike rates and then have to reverse that decision if things don’t go according to plan. Look no further than the ECB when they hiked rated to 1.25% only to reverse that decision (and then some) when the EU stalled. So you can see why it is so important to get the timing of the hike right. All in all things are proceeding according to “the plan” so we now watch and wait. As for the USD, I know there has been an awful lot of rhetoric of late calling for the USD to fall (before resuming towards PARITY) but i simply cannot see this playing out for real.

Greece continues to be a thorn in the EUR’s side.  Greece’s creditors push for more in the way of structural reform plans which the Syriza party is finding hard to pass through legislation. Greek PM Tsipras is facing a battle with the hard Leftist elements of his party to stick by his electoral pledges. Greece’s energy minister is in Russia today, an indication that the hard-Leftists in the Syriza party are more than willing to make overtures to other parts of Europe, as talks stall with the EU. Panagiotis Lafazanis, who is part of the Left Platform, of the party noted over the weekend his country was on a collision course with a “Germanized Europe”. He added that any proposals for reforms could not curtail the “will of the people and popular sovereignty” in an interview which lays out the nature of the domestic difficulties faced by PM Tsipras. He said “The current Germanized establishment, despite its internal differences, is the most devastating thing for Greece, and more comprehensively, for the entire European continent. The sooner this becomes realized in practice, the better. Because, there is no time. We have no more time. Greece is situated at a breaking point. At this hour what is required for the country, urgently and without any delay, are big and bold choices, alternatives to the Germanized Europe. The Germanized and established EU is literally suffocating our country, tightening the noose on the neck of the economy week by week”. Perhaps if they had not blown the financial pot and starved the country financially he would have had a different view. Pot kettle black!!! I find it hilarious that these politicians can throw comments like these around when THEY ARE THE ONES responsible for the mess to begin with. Greece needs to clean up their back yard before pointing fingers at other EU countries.

Bottom line, I remain confident the EUR will fall to PARITY over the coming months (well ahead of the year end as predicted by some others). Even if a solution is found in Greece (and there will be one), the higher rates in the US coupled with a slowdown in China and the EU, and lower oil prices will keep investors piling into the USD as the currency to hold. Best the FED start printing more $100 bills….they are going to be in even more demand.

NFP published this Friday will be closely watched. As I mentioned above the FED is keeping a keen eye on NFP and unemployment. With the UK and EU off for Easter, liquidity will be thin and therefore I expect currency moves to be more volatile post publication of the number. After March’s +295k and 5.50% anything over 250k will be warmly welcomed and see the USD continue to rally. That I am afraid to say means further weakness in the EUR, GBP, AUD, NZD, CAD and EM currencies which have already suffered losses over the past 24 hours following the rally in the USD. MORE OF THE SAME TO COME.


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