David Long

US Dollar Weakens, but Economy Robust – Forex Trading News – Oct 16th 2014

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Forex Market News

Fun and games in last few sessions with safe haven flow still dominating. Stocks continued to get smashed (S&P500 well below August lows now, closing at 1862) as the US retail sales number came out much weaker, as did PPI. Even the Poms slipped with the dole queue numbers showing slight weakness, following weaker CPI the previous session. The Chinese also showed weaker CPI. So inflation, the target that all Central bankers want to see in the 2 – 3 percentile band, and that was slowly improving globally has dropped a little. Despite that, it was reported overnight that Aunty Janet sees inflation in the US at 2% with growth at 3% and that the US economy is robust. This saw a big bounce in the S&P500 which at time of announcement was down 3%. It rallied off Yellen to be down 0.8%.

The bond market seems to be getting a hammering with the bets that the Fed will raise rates copping a toasting, down 37%. The bond yields fell dramatically after the retail sales, below 2% on the 10year bond. (As bonds rally, yields fall. As bonds fall, yields rally. So the trade has been to short sell bonds. But this hasn’t occurred, bonds have actually rallied) http://www.bloomberg.com/news/2014-10-15/biggest-pain-trade-gives-38-loss-to-bond-bears-getting-it-wrong.html

With this in mind, it would seem that the US dollar strength story may be finishing. The only silver lining out there to it is if Aunty Janet Yellen is right and that the targets will be met and rates will rise in 2015. As the divergence in economic outlook continues it will provide some opportunities in the interest rate driven currency market. The divergence is that the US & UK are looking to raise rates, whilst Japan and Euro are keeping low rates or even adding stimulus. http://www.bloomberg.com/news/2014-10-15/currency-trading-is-both-boon-and-bane-for-wall-street.html

This article is also an interesting read as is the accompanying 4 min video. http://www.bloomberg.com/news/2014-10-15/world-economy-gives-investors-growth-scare-as-eyes-focus-on-u-s-.html

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