Last Licks for the Dollar Bears

Last Licks for the Dollar Bears 

The dollar bears are getting their last licks in for 2017 perhaps foreshadowing of things to come in 2018. The bears took their cue from  The Conference Board Consumer Confidence Index which fell to its lowest level since November 2016 indicating that consumer spending may have peaked after this years blowout holiday season for shoppers. And retail sales data could struggle in the face of even the most modest of US rate hikes in 2018
The US yields continued to spill lower overnight with US 10 year yields trading towards the 2.4 percent levels as demand for year-end yield curve flatteners saw the two vs ten years basis narrow to 51 points.
However, year-end flows can be deceptive especially with asset manager rebalancing both Bond and currency exposures. And what should be the most sensitive G-10 currency to falling yields, USDJPY, barely budged overnight but USD weakness did leak into other parts of G-10 and emerging market currencies?
 
The US Equities
The US equity markets scratched out slight gains as tech sector winners outweighed energy losers. But with only two trading days left on the 2017 calendar, expect volumes to remain light as the New Year Party season will likely start a bit early for equity traders and rightly so after a stellar year for US stocks.
Energy Prices 
There has been a pause in WTI recent run higher. But given the much stronger price response to supply disruptions in the wake of OPEC supply cuts, the market is poised to make further gains, likely held back by holiday inspired profit taking. Indeed, the markets will continue to drift towards bullish headlines, and with geopolitical risk no less sure ahead of Libyan elections next year we should expect more regional chaos and disorder to underpin  OIL prices.
 
The Australian Dollar
Higher commodity prices and lower US yields have the Australian dollar within grasp of reclaiming the .78 level.
The supply squeeze on copper and oil are lending support to the commodity block of currencies.
The Malaysian Ringgit
Holiday thinned trading conditions continue to weigh on sentiment, however, lower US yields and higher energy prices should play out well for the MYR in early 2018.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes