By Stephen Innes
The Dollar ended the week on the firmer ground across most currencies, despite Friday's weaker than expected Q4 GDP. As the key capital goods component was positive, this despite the headline disappointment in US GDP and durable goods. The markets are less focused on backwards looking data as President Trump has been in office for little more than a week and has yet to cement key policies involving Trade, Tax and Fiscal expenditures. Depending on the scale of the infrastructure projects, US GDP could push well beyond 3% this year.
The BoJ played a significant role in USDJPY fortunes by increasing the 5-10 year bond purchases to ¥450 billion from ¥410 billion on Friday. It was a big surprise to traders as the BoJ had skipped the 1-5 year bond purchases on Wednesday, which likely exacerbated Friday's outsized topside move. However, with the BoJ policy meeting next week, the Central Bank is sending a clear signal to the markets that they will be resolute in keeping the JGB's 10-year yields near 0% for the foreseeable future.
The Mexican Peso will remain in the limelight, with current proceedings being viewed cautiously around the world. US trade policies directed at Mexico could be a precursor of the events to unfold in Asia. However, when trading in a market driven by a political headline, more so in a highly crowded trade while competing with algorithms for reading "market-moving' headlines, it is a dangerous game to separate the chaff from reality. While relations between Trump and President Nieto are clearly a work in progress, it is clear that Obama's administration diplomacy is out the window in favour of boxing gloves in the ring. On a positive note, the discussions will likely continue.
Not to be outdone by the plethora of Mexico
