china stable policy

China's economy is on a steady growth path as 2016 ends, supported by a housing boom and billions in government investment, but the mood of policymakers is more cautious than celebratory as they face "complexity" in the new year.

Controlling risks has been a constant refrain in recent months as the focus of policymakers switches to taming asset bubbles and checking unbalanced growth stemming from efforts to fuel the economy with credit.

The central bank - while reaffirming a long-standing commitment to prudent policy - said on Friday it would pay more attention to maintaining a "neutral" stance and ensure that it is "neither too tight nor too loose".

"At present, China's economic and financial operations are generally stable, but the complexity of the situation cannot be underestimated," the People's Bank of China (PBOC) said.

Bank lending is on pace to top 2015's record 11.71 trillion yuan ($1.7 trillion), helping to stoke a housing boom that saw prices rise a historic 12.6 percent year-on-year in November, while fixed asset investment by state firms is growing more than 20 percent.

DOLLAR STARTS WITH A LITTLE PROFIT

Into the final week before Christmas holiday season and after such a strong reaction in the wake of the FOMC the dollar bull run is seeing a little profit taking today. However this is unlikely to turn into anything more significant than simply another chance to buy the dollar as the charts are not suggesting this minor profit taking will impact too greatly. Treasury yields are marginally lower and this has driven a dollar consolidation with the trade weighted dollar index back from Thursday’s post-FOMC high of 103.6 to 102.6. There is room for a correction back towards 102 area however further dollar strength is expected in due course. Equities are likely to see subdued volumes this week and considering the huge run higher of the past few weeks, perhaps a bit of caution to end the year should not be unexpected.

what happen to opec cut

In an "unexpected" twist, the WSJ reports that instead of cutting its crude production by 4% as it "promised" it would do in the Vienna November 30 meeting, Iraq instead plans to increase crude-oil exports in January, according to government records, immediately raising questions about its commitment to the OPEC’s landmark production agreement. Iraq’s national oil company, the State Organization for Marketing of Oil, or SOMO, had plans as of December 8, nine days after agreeing to cut production, to instead increase deliveries of its Basra oil grades by about 7% to 3.53 million barrels a day compared with October levels, according to a detailed oil-shipment program viewed by The Wall Street Journal. Those oil shipments represent about 85% of Iraq’s exports.
The list of planned tanker loadings has been circulated among potential buyers so they can gauge its availability.
When asked by the WSJ to explain this curious discrepancy, SOMO chief Falah al-Amri declined to comment about the company’s January export levels. Iraq’s oil minister, Jabbar Ali al-Luaibi, has said he would instruct SOMO to act on the OPEC output-cut agreement.

As a reminder, Iraq agreed to cut its output by 210,000 barrels a day from October levels of 4.561 million barrels a day. The country’s oil officials were among the most reluctant to go along, disputing OPEC’s statistics and threatening to pull out of the agreement until the last minute because it needs the oil revenue to fight its war against Islamic State. Iraq says it has increased its output to 4.8 million barrels a day in 2016, from less than 3 million barrels a day a few years ago, using Western and Chinese oil companies to tap into its deep crude reserves.

EUR/USD Forecast Dec. 12-16

EUR/USD was hit hard by dovish Draghi and fell back to lower ground. Fresh PMIs, as well as other events, await the euro. Will it continue lower? Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

The ECB decided to reduce the amount of monthly bond buys to 60 billion from April 2017 but also chose to extend the program towards the end of the year and to loosen a few limits. Coupled with a dovish tone about the path of inflation, EUR/USD eventually plunged. Earlier, Italian voters rejected the constitutional changes proposed by Renzi, in another blow to mainstream politics. But here, the euro recovered quickly. In the US, the ISM Non-Manufacturing PMI beat expectations, as markets shift their attention to the FED.

Technical lines from top to bottom:
1.10 is a round number and significant resistance. 1.0960, which supported the pair in early 2016 worked as resistance in October. 1.0850, which worked as support during the same month, serves as support.
The post-Draghi low 1.0780 replaces 1.08 as support. 1.0710 is the next support line on the chart after temporarily capping the pair in April 2015.
1.0690 is the post-Trump high. 1.0570 is the bottom of the range seen afterwards.
Further below, the 2016 low of 1.0520 and the 2015 low of 1.0460 provide further support – it is the last line in the sand.

EURO REMAINS FIRM IN FRONT OF THE ECB

The bulls run on equity markets took another shot in the arm yesterday as major markets all pushed strongly higher. Wall Street continues to push into new high ground, however it was the breakout on the DAX above 10,827 which was a multi month resistance that caught the eye. This comes with the euro remaining firm just before the ECB is expected to extend its QE program by at least six months at the meeting of the governing council today. However, the interest in the press conference will be whether the ECB is at the same time also beginning to prepare for the tapering of the QE program. This would be the surprise for the market and it is interesting to see the euro having started to push higher in the run up to the meeting. Last December the ECB disappointed the market by not extending easing, something that caused a huge rally on the euro. Could we be in line for a similar disappointment? It is also worth noting that the rally in Treasury yields is consolidating and possibly beginning to roll over. This is helping to pull the US dollar lower with the trade weighted dollar index looking corrective now. If the ECB disappoints, the dollar could go into reverse mode at least for the near term.

EURO TO CONSOLIDATE WITH UNCERTAINTY AHEAD OF THE ECB

The dollar managed to unwind some of its losses yesterday as strong factory orders helped to drive a recovery. However, over the past weeks the corrective outlook for the dollar has been building and it will be interesting to see if this is anything more than a rally within the corrective pressure. The trade weighted dollar index completed a top below 100.65 and the move has merely unwound back to that neckline which is now an area of resistance. The yields on US Treasuries have been consolidating and are now longer advancing for now as the market is clearly pondering just how far the dollar has come in such a short space of time. The euro gave back some of the ground that it made following the Italian referendum, however it is beginning to consolidate today as traders look towards the uncertainty of the ECB monetary policy meeting on Thursday. This is a meeting where we expect the ECB to extend the easing program by at least 6 months, but could also begin to signal a potential tapering of these asset purchases too, and so volatility is likely to be elevated.

EURO HOLDS ITS GAINS AS TRADERS BEGIN TO LOOK TO THE ECB

The euro has had a wild ride in the past day or so as the market turned from trepidation to a state of relief over the Italian referendum. Matteo Renzi lost the referendum and subsequently tendered his resignation however it seems that the prospect of an early election has receded and this has calmed the nerves for markets. The euro unwound by close to 300 pips at one stage before drifting off overnight. With the euro holding on to its recovery gains, markets will now begin to look ahead to the ECB meeting on Thursday with an expectation of a QE extension of maybe 6 months but could the ECB also allude to potential future tapering of asset purchases?  With the euro recovering and Treasury yields consolidating in the past few days, the trade weighted dollar has made a downside break below the support at 100.6 which completed a small top pattern and implies around a 1.5% corrective move now. Equity markets have reacted positively to the Italian referendum with Wall Street positive into the close (S&P 500 +0.6 at 2205) and the Nikkei up +0.5%. European markets are looking mildly positive in early moves.

GBP/USD Weekly Forecast: Brexit Stance Hopes Will Continue To Underpin Sterling

Overall, there is scope for some further unwinding of expectations surrounding a ‘hard’ Brexit and also some further unwinding of short Sterling positions. This combination is likely to give Sterling a firm underlying bias, especially with the dollar vulnerable to a correction, although momentum will tend to fade on any approach to the 1.3000 area. Sterling gained strong support over the week with the highest level against the dollar for close to two months and just before the flash crash with a move above 1.2700. Sterling also strengthened to 12-week highs against the Euro.

The UK currency gained support after comments from Eurogroup head Dijsselbloem that the EU might be able to find a way for the UK to maintain single-market access following an EU exit. There were also comments from UK Brexit minister Davies that the UK could, in theory, continue to make payments into the EU to maintain single market access while the International Trade Minister Hands also hinted late on Friday that the UK could remain in the EU Customs Union.

The Liberal Democrat win in the Richmond by-election will also increase pressure on the government to adopt a softer tone and Sterling continued to gain support from short covering.

The Brexit process will continue to be watched very closely in the short term as the political manoeuvring continues. The remarks both on and off the record from key government ministers will continue to have an important impact on sentiment. The government is also due to submit its appeal to the Supreme Court following the High Court ruling in November that the government needed to seek parliamentary approval before triggering Article 50 to launch the formal EU exit negotiations. The government is looking to over-turn the ruling and submissions will be important, although the Court is not scheduled to make a ruling until early in 2017.

Sterling has gained support over the past two weeks from hopes that the government will not be forced into a ‘hard’ Brexit and will be able to negotiate some form of access to the single market. If these hopes are sustained, Sterling will tend to maintain a more positive tone while any evidence of a reversion to a more hard-line stance would tend to put the currency back under pressure.

As far as data releases are concerned, the PMI services-sector data will be released after mixed readings for the manufacturing and construction sectors. The latest industrial production data is scheduled for release on Wednesday along with the latest NIESR GDP estimate. On the retail side, the BRC retail sales data on Tuesday and shop-price data Wednesday will be watched closely with the inflation data particularly important given expectations that Sterling weakness will increase prices sharply over the next few months. The latest trade data is also due on Friday. The data impact is likely to be relatively neutral with the Bank of England firmly on hold in the short term.

Bank of England Governor Carney is due to deliver a speech on Monday, although it is unclear whether there will be a release of any text. Trends in the dollar will continue to be watched closely and will inevitably have a big impact on GBP/USD. The underlying tone is liable to be one of consolidation ahead of the FOMC meeting the following week, but there is the risk of some further net consolidation in the US currency after very strong US gains since the Presidential election.

There is unlikely to be any substantive Fed rhetoric with the December rate increase still a done deal following the latest employment report and the Fed will enter the pre-meeting quiet period from Tuesday. The US ISM non-manufacturing data will be released on Monday with the University of Michigan consumer confidence data on Friday.

The latest COT data recorded a small increase in net short non-commercial positions to just over 78,000 in the latest week from under 75,000 the previous week, the first increase for three weeks, and there will be a further threat of short covering which will tend to boost the UK currency.

MARKETS CONSOLIDATING DESPITE HISTORIC OPEC DEAL

Market sentiment still look to be in something of a consolidation mode today amidst a mix of factors including oil China and concern over the Italian referendum is leaving traders in a state of caution. On the positive side, OPEC members agreed to an historic production cut which will lead to the cartel reducing supply from the current around the 33.8 million barrels per day to 32.5m barrels per day. Furthermore, Russia (not a member of OPEC) has agreed to cutting its own production by 300,000 barrels per day. The price of oil has soared on the news and is up around 10% since the rumours of a deal started circulating yesterday. Another positive for sentiment is the China Manufacturing PMI  which beat estimates on both the official and unofficial Caixin data, remaining above 50 and at the highest level on the official data (51.7) since July 2014. However there is increasing concern over the capitalisation of Italian banks ahead of the Italian referendum on Sunday. If the referendum returns a “no” vote to Prime Minister Renzi’s proposed constitutional reforms then the prospect of economic reform becomes much harder, something that the banks badly need to drive growth again.

MARKETS CAUTIOUS AHEAD OF CRUCIAL OPEC MEETING

 two key factors driving the cautious approach, being today’s OPEC meeting and the prospective dollar correction. Volatility in the oil market will be high as the bi-annual meeting of the Organisation of Petroleum Exporting Countries (OPEC) is held in Vienna. Suggestions are that the key players (Saudi Arabia, Iran and Iraq) are engaged in a game of poker, and the prospect of agreement seems to be increasingly in the balance. Broadly speaking, Saudi Arabia wants every country to cut, whilst Iraq and especially Iran are proving resistant as they look to ramp up production following years of sanctions. The last two years of market share grab will mean that the countries may struggle to come to an agreement. The other key market factor is that the recent bull run on the dollar has stalled and an increasingly mixed outlook is forming. The decline in Treasury yields have pegged back the bulls, but equally the Trade Weighted Dollar is finding support above 100.65 and is not yet ready to lose the hard fought gains. This is all driving consolidation across markets. The Bank of England also gave results of the UK banks stress tests at 07.00GMT showing that Royal Bank of Scotland has failed and needs a new capital plan, meaning that 8 years after the financial crisis, UK banks are still not out of the woods yet.

DOLLAR HOLDING UP AS THE NASCENT CORRECTION STALLS

As Treasury yields begin to drift lower it has seemed as though the dollar bulls had lost control, with the prospects of a corrective move growing. However, maybe there is still some life left in the dollar bull run as the nascent corrective move is being held up today. The trade weighted dollar index may have retreated from its recent peak of 102.05 but there is support at 100.65 that is still holding. Today’s moves show support again and there is little real significance yet to the dollar correction which may still yet prove to be short lived. Several key markets priced against the dollar have got significant overhead supply that could prevent a significant corrective move for the dollar. Watch for confirmed moves above $1.0710 on EUR/USD, above $1200 on gold and below 111.35 on USD/JPY as trigger signals for a continued correction. The oil price is though far more concerned with developments at the meetings involving OPEC members in Vienna. Whilst Iraq appearing to be co-operative is helpful, the Russians have yet to declare anything their position yet and this is a concern. Volatility is likely to be high in the coming days and headlines will drive trading.

US DOLLAR LOOKING CORRECTIVE AS TREASURY YIELDS FALL

After a number of corrective signals failed to put the skids on the dollar rally in the past week or so, the most significant signals so far are beginning to suggest that profit-taking on the dollar will be taken more seriously this time. The driver of the recovery had been the sharp rally on Treasury yields in recent weeks, but this move is threatening retrace, with the two year and ten year yields lower today. This move is showing through on the US trade weighted dollar index which after a couple of days of consolidation is beginning to pull lower today. A close below last week’s low at 100.65 would confirm the near term correction. Markets will also be focusing on the key OPEC meeting’s this week with the main meeting on Wednesday. However the fringe meeting of members and Non-OPEC members (ie. basically Russia) will take place today and there are suggestions that Saudi Arabia (one of the major voiced in OPEC) will not take part, which would reduce the impact of this meeting and will make traders even more nervous. The oil price will be very volatile in the coming days and this could impact on market sentiment. It will also be interesting to see how the US returns from the Thanksgiving holiday.

THE DOLLAR REMAINS STRONG FOR THANKSGIVING

As the US moved towards Thanksgiving the dollar has remained strong and gone on another tear higher into the holiday period in the US. Stronger than expected data on Durable Goods Orders and the flash Manufacturing PMI saw Treasury yields spike higher and the dollar followed suit. This has pulled the greenback through key levels against the euro and the yen, whilst the negatively correlated gold price has broken it key $1200 support. These huge breaks have taken the dollar to even more overstretched levels and whilst the move is strong, it will be interesting to see the reaction of traders to some dollar negative news now. The more overbought the dollar becomes, the more decisive the retracement could be once the elastic starts to snap back. The FOMC meeting minutes have done little to change any expectations of rate hikes, with the market already prepared for rates to rise “relatively soon”. For today though, with it being Thanksgiving public holiday in the US there is likely to be reduced trading volumes however this could mean uncertain trading moves and potentially increased volatility in thin markets. For the UK, reaction to finance minister Phillip Hammond’s first financial update has been relatively supportive on sterling. With Gilt yields ticking slightly higher, the pound has held its ground against a storming dollar.

FOREX MARKETS IN CONSOLIDATION AS THE DOLLAR BULL RUN STALLS

 With the rise in the US 10 year Treasury yield taking a breather, the US dollar rally has run out of steam, at least temporarily. This is driving a consolidation across forex majors, but with the dollar having rallied 10% against the likes of the yen in the past couple of weeks there is still the prospect of a corrective move. Despite this though, US equities continue to pull higher, with the Dow hitting 19,000 for the first time ever and the S&P 500 over 2200 for the first time ever. This is dragging the European markets higher too but they are yet to breach key resistance levels and it will be interesting to see if the DAX can manage to break through the 10,800 level which has been so difficult in recent months. The FOMC meeting minutes tonight will be interesting for signs of just how hawkish the committee was leaning before Trump’s reflation rhetoric came to impact expectations. The impact of the minutes may be a little subdued as things have moved on so significantly since the FOMC meeting at the beginning of November. In the UK, Chancellor Phillip Hammond (finance minister) holds his first key economic speech in the UK Autumn Statement where he is expected to announce more of a fiscal expansion than his predecessor George Osborne.

OIL PRICE JUMP BOOSTS EQUITIES WITH DOLLAR UNCERTAIN

A boost higher in the oil price has helped to give market sentiment another shot in the arm and has propelled Wall Street into new high ground. With the bi-annual OPEC meeting next week, the newsflow over the implementation on production cuts/freezes will ramp up. Yesterday’s optimism over the production cut helped to pull oil sharply higher yesterday and the move has continued today. The move helped to pull the S&P 500 into all-time high ground yesterday, with the VIX Index back below 13 and its lowest since 7th October. It will be interesting now to see if this can filter through to other markets such as the DAX which has struggled for months around its key 10,800 resistance area.  With Treasury yields consolidating, there have been signs in the last day or so that the dollar run higher is struggling to maintain its impetus and there are key markets such as EUR/USD and USD/JPY that are looking susceptible to a retracement. The dollar has reacted positively today but the next move is uncertain, which could encourage profit-taking.

OIL HIGHER WITH MILD DOLLAR WEAKNESS TO SUPPORT MARKET SENTIMENT

As the new trading week begins, market sentiment has started relatively settled but in a more positive mind-frame today with oil trading higher. The rally on the dollar has just stalled a touch in the early moves, with Treasury yields flat to slightly lower on the 2 year and 10 year maturities. However it seems to be a more positive start to trading for the oil price which is helping sentiment, after suggestions that there is a movement towards implementing the OPEC production cuts. Furthermore, Russian President Putin also suggested that there are few hurdles to reaching an agreement on production levels. This has helped to pull the price back higher again. The positive sentiment is seen across forex majors with the yen remaining weak, whilst the Canadian loonie is outperforming the US dollar, another signal of a positive impact of oil.

The euro is on its longest losing streak ever

The euro on Friday was headed for a 10th straight loss against the U.S. dollar, and investors are taking notice as the shared currency extends its longest losing streak since its inception.

The path for the euro doesn’t look much rosier in the short term, with an Italian referendum and the prospect for further monetary stimulus from the European Central Bank among its potential hurdles.
The euro EURUSD, -0.3388% on Thursday marked its ninth straight decline against the greenback, the longest string of losses since the euro started trading December 1999. It hit an intraday low of $1.0582 on Friday, and that followed Thursday’s dip below $1.06.
On a technical basis, the market is looking pretty stretched now. However, the momentum is very strong against the euro at the moment. As exactly how long it will continue, that remains to be seen,” said Richard Perry, market analyst at Hantec Markets.

He said the next level to watch is $1.0538 as that is the December 2015 low. The $1.0456 level is the March 2015 low and that “is a massive, massive support [area]. If that goes, then you’re looking at parity.”

MARKETS LOOKING MORE CAUTIOUS AS DOLLAR CONSOLIDATES

An air of caution is beginning to come over markets as the huge run higher on the dollar consolidates with it beginning to run out of steam. For the past couple of days now the excessive moves higher on Treasury yields have begun to settle down and although the dollar briefly pushed above the key resistance of 100.5 on the Trade Weighted Dollar Index yesterday (to reach its highest level since 2003) there is a feeling that some of the steam is beginning to go out of the dollar bull run. Whether this turns out to be the beginning of a near term corrective move, or just a pause for breath remains to be seen but there are a few signs of exhaustion on technical charts such as the Dollar/Yen and Euro/Dollar, whilst gold has been consolidating for the past few days. Equity markets are also showing signs of caution again.

DOLLAR RALLY IS STALLING AS TREASURY YIELDS CONSOLIDATE

The dollar rally seems to be slowing in the past couple of days as the huge move higher in Treasury yields has just started to consolidate. This means that there could be a short period of respite at least, for the selling pressure on major forex currencies and gold. The Trade Weighted Dollar Index closed above 100 for the first time since December last year yesterday but the market is beginning to consolidate. This comes as the 2 year Treasury yield is settling down around 1.0% and the 10 year yield is settling around 2.2%. This settling is allowing support to form on the likes of gold (above $1211) and the euro (above the key support around $1.0710). It is possible that the profit-takers may look to move in if this consolidation continue. However, until there is more meat to the bones of what Trump’s proposals are, it is likely that the market will back this reflation trade that is supportive for the dollar. This comes as FOMC members continue to roll out with more hawkish language in the wake of the prospect of fiscal stimulus from President-elect Trump. Eric Rosengren suggests this would generate a tighter monetary policy with Daniel Tarullo said yesterday that a hike was more likely now.

THE DOLLAR REMAINS STRONG AS TREASURY YIELDS JUMP AGAIN

The move higher on the dollar has continued today as the markets continue to price for higher US growth and inflation of a Trump presidency. The strong dollar has been exacerbated by the early jump in Treasury yields (the bond market was shut Friday for Veteran’s Day), with the 10 year yield now over 2.2% and the highest since January. Also the highest since January is the Trade Weighted US dollar which is again close to 100. These moves are impacting across major forex pairs with EUR/USD back to Q1 levels and Dollar/Yen moving above a the key technical resistance at 107.47. The stronger dollar is also pulling gold back below the key October support and the bears will now be eyeing the $1200 level once more. Economic data out of Asia has been mixed this morning, with Japanese GDP better than expected at an annualised +2.2%, but China Industrial Production (+6.1%) and Retail Sales (+10.0%) both missed expectations.

MARKETS LOOKING MORE CAUTIOUS AS VOLATILITY BEGINS TO SUBSIDE

A slight air of caution is beginning to take hold now, with markets still trying to figure out the impact of a Trump presidency, and there are signs that volatility is beginning to subside now. After the initial wobbles, Wall Street had given Trump the thumbs up and pushed strongly higher. The prospect of tax cuts and potentially $1 trillion of fiscal stimulus would do that, whilst the changes to banking regulation is also deemed to be strong for the banks sector. The dollar has been on a tear since the middle of Wednesday morning, however there are a few early signs of this rally beginning to slow. The rally on Treasury yields though continues apace yesterday and if this begins to drop off then there could be some cause for some near term profit taking on these long dollar positions. The safe havens have been hit in the past couple of days but can the early moves today be anything more than a bear rally that delays further selling pressure?

VOLATILITY YET TO SETTLE WITH DOLLAR STRENGTH EBBING SLIGHTLY

The remarkable victory for Donald Trump in the US Presidential election resulted in an incredibly wild ride on financial markets that saw sharp swings first one way then the other. Initial pressure on risk appetite and the dollar turned around into the close, with an incredible rally in sentiment. The driver seems to have been the bond markets which took Trump’s acceptance speech as being a driver of both growth and inflation. This pulled a huge swing higher on the US 10 year Treasury yield and a significant steepening of the yield curve. Just 24 hours after Trump was announced as the President-elect, volatility is still yet to settle down. Will this initial assessment of reaction continue? Today there still seems to be an appetite for safe haven plays as the yen and gold have recovered some of the losses into the close. Furthermore, some of the dollar strength is just ebbing away again this morning and it will be interesting to see where the greenback ends up as the volatility subsides.

WHAT ARE THE MARKET LEVELS TO WATCH FOR THE PRESIDENTIAL ELECTION

As the US goes to the polls markets are consolidating. However this will certainly be the calm before the storm and overnight tonight we could get some significant swings with big volatility across forex and commodities. As the swing states are revealed early on Wednesday morning (UK time) we should get an indication of the victor. However that means volatility is likely to be significant early on, especially if Trump has a few strong early results. Ultimately with Hillary Clinton around 4% ahead in the polls and likely to win, a Clinton victory would be the least volatile outcome for markets. 

DOLLAR LOOKS TO STABILISE AHEAD OF NON-FARM PAYROLLS

After several days of dollar correction, the bulls are starting to build support again which is starting to unwind some of the recent safe haven flows ahead of Non-Farm Payrolls. The need to re-price for a Trump victory has sent market fear soaring in recent days with the VIX volatility closing yesterday at its highest level (at 22) since Brexit. However, whilst equity markets are feeling the concern, it is interesting to see Treasury yields begin to pick up slightly again and the US Trade Weighted Dollar also moving higher. This is helping the dollar to perform better across the forex majors and begin to unwind some of the safe haven flows away from the yen and gold. Today is Non-farm Payrolls and with the Fed still firmly on course for a rate hike in December it would need a drastically disappointing set of labor market data to alter market expectations. With expectation of another middle of the road report and the market more mindful of the impending election, it is possible that this could be one of the lower volatility Non-farm Payrolls Fridays we have seen for a while.

FEARFUL OF A TRUMP VICTORY THE DOLLAR REMAINS UNDER PRESSURE

Markets remain fearful of a Donald Trump victory and the dollar is under pressure. Safe haven assets such as US Treasuries, the Japanese yen and gold are rallying, whilst higher risk plays such as equities are being sold. Moreover though, the dollar is corrective and this is impacting across the forex majors, with even the embattled sterling managing to rally against the greenback. In the past week, the Trade Weighted Dollar Index has dropped from 99.0 to 97.1, which is almost 2.0%. Even the Fed has done little to support the dollar, in spite of there being little change to the expectations of a rate hike. The Federal Reserve quite predictably chose to hold off from increasing the Fed Funds rate, given the proximity to the Presidential election. The FOMC believes the “case for an increase in the federal funds rate has continued to strengthen” but has chosen to “wait for some further evidence of continued progress”. Whilst there was no explicit point towards a December hike, there is little to suggest it will not happen. According to the CME Group FedWatch tool, the probability of a December hike remains above 70%. For now the dollar is running on politics and not economics or fundamentals. Non-farm Payrolls may create some volatility tomorrow but it is Trump’s polling that seems to be key right now.

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