The U.S. dollar is firm against most of the major currencies, consolidating the losses from the end of last week and extending its gains against the yen to almost JPY102. The weekend nuclear deal with Iran has seen a spurred a sharp drop in oil prices and may be helping buoy stocks. A sustained fall can boost household purchasing power or profits some producers/refiners, depending on the gains are distributed. It can only add to the disinflationary environment.
Rhetoric from the ECB has continued into this week from last. Now it is Hansson's turn to play up the ECB options, including being technically ready to cut the deposit rate, though still scope to cut the refi rate. The euro had already begun trading off, after buying in early Asia failed to extend the pre-weekend gains. It may find support in the $1.3480 area, though a close below $1.3510 would warn of some technical deterioration.
It was the BOJ's Kuroda who made the most interesting comments about negative rates, which despite the years of zero interest rate policy (ZIRP), Japan has not adopted a negative key. Kuroda said while such a move maybe be (technically) possible, the precise economic or market impact is not known. The risk-reward calculus and the fact that there are other measures that can still be taken, coupled with taking recent comments that play down deflationary risks (Nov CPI is expected to have ticked up. It is to be released end of the week).
Sterling managed to make a new multi-week high in early Asia at $1.6240 and proceeded to drop almost 2/3 of a cent before finding a late morning bid. The $1.6260 area turned sterling back twice last month, though with today's move, the double top has become a potential triple top (which may be seen as a derivative of a head and shoulders pattern). A break of last Friday's low just below $1.6180 and close below there would signal some deterioration in the technical tone.
The dollar surged to almost JPY102 in Asia before consolidating in Europe. Support is now seen near JPY101.40-60. The weak yen may have helped bolster the Nikkei, which tacked on another 1.5% to extend the rally to 11.7% since Nov 8. Today's advance was led by telecoms, spurred in part by reports that a hedge fund had taken a large stake in Softbank (OTC:SFTBF).
The Australian dollar initially fell to new eleven week lows to $0.9120 before recovering back to around $0.9160 in the European morning. There is potential for it to be turned back from the $0.9180-$0.9200 area as the short-term operators prepare for bearish currency comments by the RBA Deputy Governor (LOW) tomorrow.
The Canadian dollar is also trading heavily. Although some may be tempted to link the price action to the decline in oil prices, it seems like an exaggeration. Oil importing Japan is seeing even more pressure on its currency than oil exporter Canada. Oil producer U.K.'s sterling is among the more resilient of the majors.
Perhaps the weakness in the thinner traded Norwegian krone is a function of the decline in oil prices. It is the weakest of the major currencies today, off about 0.8% against the greenback. Yet the stock market is up about 0.3% and the oil and gas sector is up about 0.25%. Separately, reports indicate that Norway is set to relax mortgage lending standards to arrest at the decline in real estate prices, which are accelerating faster than the central bank projected.
Disclosure: I 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. (More...)
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