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Markets Mark Time, Dollar Consolidates Losses

Jul. 17, 2017 6:39 AM ETUUP, FXE, EUO, FXY, FXC, YCS, UDN, CYB, ERO-OLD, CNY, USDU, JYNFF, DRR, ULE, YCL, EUFX, FXCH, URR
Marc Chandler profile picture
Marc Chandler
15.57K Followers

Summary

  • USD is stable to firmer against most major currencies.
  • Light news stream; Chinese data stands out, but not helpful for Chinese shares, especially small-cap.
  • Industrial commodities are firm and oil is trying to expand advance for a sixth session.

After falling to new lows for the year against several major currencies in response to disappointing retail sales and uninspiring CPI before the weekend, the US dollar has begun the new week on a more stable note. It is firmer against nearly all the major currencies, though it is mixed against the emerging market currencies.

The greenback's gains have not been very impressive. Nor have they exceeded important technical levels. Short-term participants appear caught between the strong upside momentum by the major foreign currencies and concerns that a key driver, the ECB, may try to discourage the market from getting too far ahead of itself in tightening financial conditions.

Draghi can be expected to emphasize that the ECB extraordinary monetary policy is aimed at putting inflation on a sustainable and durable path toward its target (near but below 2%). It is using all the appropriate tools in its mandate to achieve its legal objective. As of last month, it judged that its goal was still not achieved and that the accommodative monetary policy would continue until its objective was reached.

The German 10-year Bund yield rose from 23 bps on June 26 to nearly 62 bps last week. It is at 57.5 bps today. The 50 bps was an important hurdle on the way up, capping yields in January and again in March and May. This will be an important area to watch as yields pull back. In comparison, Italy's 10-year yield rose from 1.87% to 2.35% in the same period. It is now at 2.25%.

While many, like ourselves, expect the ECB to continue to buy bonds well into next year, there is some thought being given to the possibility that as it reduces its purchases, the ECB will focus on some particular asset classes, like corporate bonds and asset

This article was written by

Marc Chandler profile picture
15.57K Followers
Marc Chandler has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. In 2009 Chandler was named a Business Visionary by Forbes. Marc's commentary can be found at his blog (www.marctomarket.com) and twitter www.twitter.com/marcmakingsense

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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