The Day of the Dollar

The U.S. dollar was resplendent overnight as quarter-end rebalancing flows saw the greenback charge higher against its G-10 counterparts. The rally also left energy and precious metals flailing in its wake. Although Chicago PMI fell to a lower than expected 47.1, it was balanced out by a rise in the Dallas Fed Manufacturing Index of 1.5; lower than the previous month, but much better than forecast.

Quarter and month-end rebalancing flow aside, the reasons for the dollar hegemon remain quite clear to me. Firstly, although the United States’ data isn’t quite as rosy as it was at the start of the year, it has shown a stubborn resilience in the face of a trade war and an economic slowdown washing over the rest of the globe. Secondly, the Federal Reserve is refusing to squander its rate normalisation peace dividend by cutting too soon when the domestic economy remains strong. The refusal to panic has left U.S. 2-year notes yielding 1.63% and 10-year notes 1.67%. Try finding those sorts of yields amongst high-quality government bonds globally at the moment.

Short of a U.S.-China trade deal magically appearing out of nowhere in the next few weeks, causing a stampede by global investors into emerging markets, it is hard to make a bearish case on the dollar for the remainder of 2019.

Japan continues to defy the sceptics, a state of affairs that has existed for the last 25 years I might add, with the Tankan Large Manufacturers Index printing an above expectation five versus two forecast. Although the Tankan shows that Japan is not tanking yet, there are warning signs, with the Large Manufacturing Outlook plunging to two from seven previously. The outlook is unsurprising as the U.S. and China trade war drags on, and Japan engages in its own tête-à-tête with South Korea. However, neither Asia’s 2nd or 3rd largest economies are out for the count yet, so cheer up people.

China starts its one week 70th birthday holidays today and barring a Presidential tweet or two; this will probably suck the volatility out of the Asian timezone for the rest of the week.

Luckily, we have plenty of tier one data to keep us entertained elsewhere, starting with the RBA rate decision this morning at 1230 SGT. The street has priced a cut of 25bps from a record low of 1.0% to an even more record low of 0.75%. I am more in the 50/50 camp, thinking the RBA will likely prefer to see how this months trade talks in Washington D.C. this month progress, instead of using its increasingly depleted ammunition stock too soon.

Readers should expect increasing volatility on GBP and U.K. stocks as we enter the business end of the season with Brexit. `The possible permutations remain more complex than my wife choosing what to wear to work each morning. (a quantum computer would struggle with that one) With complexity comes uncertainty, with uncertainty, comes volatility. I will leave it to readers to decide whether I am writing about Brexit, the GBP, the U.K government, or married life.


Wall Street finished the quarter on a positive note with the S&P 500 rising 0.50%, the Nasdaq rising 0.75% boosted by Apple, and the Dow Jones climbing 0.35%. A White House spokesman denied the story that the U.S. was about to lock out Chinese listings on domestic exchanges, describing it as “fake news.”

Chinese mainland exchanges are closed today, but the quarter-end feel-good factor has spilt over into regional exchanges this morning. The Nikkei is 0.70% higher, the Kospi 0.40% higher, and the ASX 200 0.15% higher.

Even Hong Kong’s Hang Seng has eked out a 0.25% rise, although caution may be warranted here. Protestors are allegedly planning to make their presence felt in the SAR even as Beijing’s birthday parade gets underway. It may limit gains in Hong Kong, even as the positive performance overnight by equities flows through to other regional markets.


End of quarter portfolio in-flows to the United States boosted the dollar overnight. Its relentless rise continued against the Euro most notably, as the Euro broke support at 1.0925 on its way to a 0.40% fall to 1.0890. With Euro at 15-month low, the next technical support is at 1.0840. After that, the trapdoor opens with nothing but clear air until the 1.0600 regions. Expect much noise from the White House if that happens.

The AUD fell 0.25% to 0.6750 overnight ahead of today’s RBA rate decision. A dovish statement and a rate cut have the potential to trace out another down-leg for the beleaguered currency with support nearby at 0.6740 and then the 0.6700 area. A no-cut decision would probably trigger some short-covering, but this may be temporary ad traders immediately price in an RBA cut before the year’s end.

The dollar index is 0.10% higher in Asian trade, reflecting its strength against the majors. The dollar is broadly unchanged against Asian regional currencies today as the market takes a wait and see approach to events happening elsewhere. China is closed for the week.


Oil bulls signed an unconditional surrender overnight as both Brent crude and WTI waved the white flag consigning the Saudi Arabian led rally to history. Brent crude collapsed by 3.1% to $60.25 a barrel and WTI fell a massive 3.5% to 54.25 a barrel.

A remarkably fast return to near full production by Saudi Arabia has been the main driver of the complete unwind of the attack-led rally of two weeks ago. The march higher by the dollar overnight was a two-pronged attack that even the most ardent oil bull could not withstand.

Brent crude and WTI both have support nearby at $60.00 and $54.00 a barrel respectively. The price action overnight had a capitulation look about it, but we could see more stop-loss selling if those levels break.

Asia has seen some profit-taking from short-term money and other bargain hunters with Brent and WTI both 0.60% higher in early trade. Any rallies though are likely to be met with plenty of sellers though as a slowing global economy and the recovery of Saudi production outweigh any Middle East risk factors for now.


The mighty dollar was the final straw for gold as well overnight as it plunged 1.65% to $1472.00 an ounce, a 28 dollar fall. Long-term support at $1480.00 crushed with stop-loss selling triggered after it broke.

The $1480.00 area now becomes technical resistance to any short-term rallies. The overnight low at $1472.50 provides intermediate support ahead of the more substantial $1450.00/$1453.00 regions.

Unless the geopolitical narrative comes to the for again to provide support, trading is likely to be dominated by the strength of the dollar and the paring of long positioning with gold still 22.45% higher annualised.

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.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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