Forex Market News
As the stock market continues to tumble there is two opposing forces at play in the US dollar. These different opinions are weighing on the major currencies and creating some volatility and for me confusion. The opposing forces are the bulls who want to take this pullback/dip in the dollar as a great buying opportunity, versus bears who see the global economic growth as stumbling. I get the sense that the Greenback’s little pullback could be something more than just that, this could be a trend changer but I won’t be jumping from my bullish stance on the US just yet.
In normal (as in historically normal) market conditions, the Greenback attracts fund flow during times of uncertainty. With the rising sense that the global conditions are struggling (thanks to mainly Europe and what is now seen as Germany groaning under the strain) the talk out there is that the US may not lift rates until 2016 now. This is causing some safe haven flows with gold price bouncing off support of USD$1200/ounce and the US$/Yen falling 300+ pips. We can also see this in the bailing out of stocks as VIX is goes vertical. However, one of the biggest go to safe havens, the US bond market is little changed this week. In fact, the bond market (and these guys are the most accurate) sees no inflation in the US for the rest of this decade, 1.5% through to 2019 is the call. This is well below what the Fed expects and what would drive them to raise rates.
You might get the feeling that I am unsure of what is going on, and you would be partially correct. I see murky conditions which makes it hard to be definite about a direction. Basically I am still looking forward with a bullish greenback view, but I am walking backwards. If that makes sense to you.
The Europeans (read Draghi) are not helping the situation with a lack of contribution to the global growth. All the strength coming out of the US and China must flow somewhere, they are producing far too much to be consumed all locally. They need the European markets to be functional and it is not. So the great US comeback is under threat, more so with a higher dollar. The emerging markets of Brasil, South Asia, South Africa etc can’t afford American goods at these prices. Something has to give and it will be the greenback when it happens.