There is mounting skepticism on the continuation of the dollar rally, albeit from analysts who didn't see the rally coming in the first place.
The inflection to start the current euro rally (and near-term top in the DXY) began on August 15 as the PBoC paused in the dramatic stealth devaluation via fixing. Risk assets, broadly, rallied. That rally continues despite the yuan fading, and trade pressures continue to mount. (China now will cease all trading talks with the U.S. as of this weekend, allegedly).
If we look towards the lagging CoT settlements, we see that $5.35B in net-long dollar positions fell off. The 5-year percentile of the CoT dollar positionings fell from 84 to 80; the euro positioning fell from 68 to 67.
As noted previously, the slow down in the rate in change in LIBOR rates have stunted further growth. By this could be due to China selling treasuries, which holdings hit a six-month low, for dollars as they have been unable to tap Hong Kong banks for borrowing dollars through the USDHKD.
I pointed out that as China switched from European banks for dollar funding to Hong Kong, the USDHKD went and the EURUSD rallied hard. The USDHKD exchange rate collapsed.. but, this could be due to China easing pressure on the HKD.
With that said, the DXY could travel back to 92 without signalling an end to the rally. If we look at the monthly chart of EURUSD, it is evident that it has continued to make a serious of significant lower-highs, five in total since the all-time high of 1.6038 in the heat of the financial crisis.
There are two important resistance trend lines from that peak and the euro could rally to 1.18-19 level, but may see selling come in.
Moreover, rate differentials between Germany/U.S. have hit another record low.
If the EURUSD even attempts to reconnect with rate differentials, we could easily see a situation where the euro falls on a continued backdrop of lax policy out of the European Central Bank and fading economic growth.
The potential for parity is far greater than most expect. Even if markets assume the Fed may not hike but two or three times in 2019, the policy divergence between the European counterparts will remain intact.
The inflection to start the current euro rally (and near-term top in the DXY) began on August 15 as the PBoC paused in the dramatic stealth devaluation via fixing. Risk assets, broadly, rallied. That rally continues despite the yuan fading, and trade pressures continue to mount. (China now will cease all trading talks with the U.S. as of this weekend, allegedly).
If we look towards the lagging CoT settlements, we see that $5.35B in net-long dollar positions fell off. The 5-year percentile of the CoT dollar positionings fell from 84 to 80; the euro positioning fell from 68 to 67.
As noted previously, the slow down in the rate in change in LIBOR rates have stunted further growth. By this could be due to China selling treasuries, which holdings hit a six-month low, for dollars as they have been unable to tap Hong Kong banks for borrowing dollars through the USDHKD.
I pointed out that as China switched from European banks for dollar funding to Hong Kong, the USDHKD went and the EURUSD rallied hard. The USDHKD exchange rate collapsed.. but, this could be due to China easing pressure on the HKD.
With that said, the DXY could travel back to 92 without signalling an end to the rally. If we look at the monthly chart of EURUSD, it is evident that it has continued to make a serious of significant lower-highs, five in total since the all-time high of 1.6038 in the heat of the financial crisis.
There are two important resistance trend lines from that peak and the euro could rally to 1.18-19 level, but may see selling come in.
Moreover, rate differentials between Germany/U.S. have hit another record low.
If the EURUSD even attempts to reconnect with rate differentials, we could easily see a situation where the euro falls on a continued backdrop of lax policy out of the European Central Bank and fading economic growth.
The potential for parity is far greater than most expect. Even if markets assume the Fed may not hike but two or three times in 2019, the policy divergence between the European counterparts will remain intact.
Comment:
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