Monday Focus: Dollar Bears aren't chasing the Shutdown

The U.S. government was still in ‘shutdown’ mode early on Monday, giving the dollar a reason to stay off the clutch

Dollar bears in lukewarm pursuit

The U.S. government was still in ‘shutdown’ mode early on Monday, giving the dollar a reason to stay off the clutch at the start of a potential sixth straight week of declines.  That said sellers looked circumspect due to prospects of agreement between Republican and Democratic leaders of the U.S. Senate following talks that carried on late on Sunday night. Talks will resume on Monday. A vote is set for 12PM Washington Time, 5PM GMT. The pressure on Democrat and Republican leaders to end the stand-off is intense, so market participants are watching for any sign cracks in Democrats’ resolve on immigration status for “Dreamers”. The deal on the table is only a ‘stop gap’ though. It will fund spending till early February. That means a breakthrough could be treated as hollow by markets.

U.S. futures soft, Europe flat-to-higher

Till then, U.S. stock futures pointed slightly lower. Asia Pacific markets took the same cue, though momentum after a string of record peaks eventually enabled MSCI APAC to erase thin losses and rise 0.1%. Nikkei also inched up.

FTSE

The FTSE was on the flat line after breaking an almost week-long losing streak on Friday. No follow through for the benchmark, given that the pound just wouldn’t fall. FTSE buyers have pushed the cash index to within three points of Thursday’s 7739 high so far on Monday. FTSE closed off lows at 7700 on Thursday before rising a day later.

DAX

Germany’s DAX was 12 points lower, losing a small lift from the SPD political party voting on Sunday to continue working towards a coalition deal with Chancellor Merkel’s CDU conservatives. Tortuous discussions have delayed formation of a government for over three months. DAX’s 13455 spike high on Friday resists.

EUR/USD

The euro was up about 20 pips against the dollar for similar reasons. It has bounced at $1.2211 on Monday having reversed to fill the 1.2234-2258 Friday/Sunday gap in Asia. Next sensible target looks to be Sunday highs circa $1.2274.

EUR/GBP

The euro was however, struggling against the pound, suggesting sterling was entering a phase of underlying strength, not just benefitting from dollar weakness. This pair’s range since 18th December is 88p-89.28p.  The pound was again at the lower bound of that channel.

GBP/USD

Sterling was much stronger against the dollar, through key $1.3835 resistance, heading to last week’s spike highs around 1.3870s.

Dollar Index

The Dollar Index did drop as much as two tenths of a percentage point to 90.155, close to last Wednesday’s 3-year low at 90.104, before ticking back up.

USD/JPY

Cautious dollar bears were also evident in the yen, where the notion of a ‘crisis’ on Capitol Hill was belied by the USD/JPY’s seeming inability to retain lows around ¥110 dollar support. Still, ¥111.18 resistance, the low of the big slide on 10th January, is proving persistent.

ZAR

The South African rand was the biggest mover in Asia, rising almost 1 percent at one point to 2½ year highs of 12.0825 per dollar after the ruling ANC party met over the weekend amid reports that President Jacob Zuma may be ousted.

Oil

Oil prices ticked up on Saudi Arabia comments that cooperation between oil producers on supply cuts would continue beyond 2018. Brent crude futures were up 14 cents at $68.75, right at resistance since the 19th across $68.75-88. Brent has battled its way up from $68.29 support. U.S. WTI futures were up 16 cents at $63.47. Upside focus is on the 16th January peak of $64.89, the highest price since December 2014.

Gold

U.S. government uncertainty is again, not leading to major gold gains. It was up just 4 cents at the time of writing, within touching distance of $1357-74 weekly resistance last validated early in September.

Economics

Whilst it will be a busy week (BoJ on Tuesday morning, ECB on Thursday) there’s nothing major on the slate for Monday. As well as a likely non-event Bank of Japan meeting, Tuesday will also bring Germany’s ZEW economic sentiment survey, a ‘flash’ Eurozone Economic Sentiment indicator and late that night, Japanese Import/Export data.

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