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March 17, 2017

Here is the today's Market Analsysis by FXPrimus.

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USD mean reversion?

The dollar has been hit hard this week.

There’s likely to be some profit-taking and some closing-out of positions ahead of the weekend.

The fall in the yen overnight suggests to me that the “monetary policy divergence trade” isn’t over yet.

As a result, I would expect some mean reversion in the pairs that have been the biggest movers this week.

EUR for example could weaken somewhat if, as I expect, Trump’s meeting with Merkel goes off well. GBP too may come off somewhat after yesterday’s sharp gains.

OIL may fall more

I’ve been negative oil for some time.

The fact that it fell yesterday despite bullish comments by the Saudi oil minister suggests to me that market sentiment is turning negative.

USD lower

The dollar was generally weaker, probably reflecting the continued impact of the Fed decision plus positive stories in GBP and EUR.

Treasury Secretary Mnuchin came out in favor of a stronger dollar over the long term, saying it’s a sign of increasing confidence in the US.

The US economic data was good, particularly Philly Fed new orders were the strongest in 30 years and single-family home building permits were good too, which helped Fed fund rate expectations to rise slightly.

GBP, EUR up: NZD, AUD, JPY down

Sterling was the main story yesterday after the minutes of the Bank of England MPC meeting showed “some members” (i.e., not just one or two) feeling that it wouldn’t take much to warrant an immediate hike in rates.

EUR gained after ECB Board member Nowotny said the ECB doesn’t need to follow the US model of completing QE before raising rates, and also that the ECB could raise its deposit rate before the main refinancing rate.

AUD and NZD weakened after yesterday’s disappointing data for the two countries (Australia unemployment rose more than expected and NZ GDP rose less than expected).

JPY weakened, probably because of the view that BoJ will be the last major central bank to normalize policy.

OIL lower

Oil fell despite upbeat comments from the Saudi oil minister, who said OPEC’s production cuts could be extended if necessary and that Saudi Arabia is “going to do what it takes to bring the industry back to a healthy situation.”

Gold was little changed, but silver fell sharply

Today’s schedule

  • G20 Finance Ministers and Central Bank Governors begin two-day meeting.
  • EU trade balance.
  • Canada manufacturing sales.
  • US industrial production & capacity utilization.
  • U of Michigan consumer sentiment survey.
  • US leading index
  • Trump meets with Chancellor Merkel in Washington.

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