Intraday Market Thoughts

Open Currency Warfare

by Adam Button
Feb 1, 2017 1:31

Donald Trump and his team singled out three countries for currency manipulation on Tuesday and came closer than ever to pledging to devalue in response. EUR was the top performer of the day; the US dollar lagged on both fronts. China's Jan manufacturing PMI edged up to a higher than expected 54.6 from 54.5 in Dec. A new Premium trade was posted earlier on Tuesday, with the details on the fundamental and technical rationale in the Premium video below. The existing  trades ahead of the Fed & NFP are also covered.

A two-pronged salvo on currency manipulation Tuesday makes it likely the communication was planned and deliberate. It started with Trump trade adviser Peter Navarro who said Germany is using a grossly undervalued euro to exploit the US. That was followed a few hours later by Trump singling out Japan and China.

“Other countries take advantage of us with their money and their money supply and devaluation. Our country has been run so badly, we know nothing about devaluation; every other country lives on devaluation,” he said.

Trump says what he means and we're finding out that he's following it up with action. If he believes other countries are openly and deliberately devaluing, the risk of the US taking countermeasures rises exponentially and the consequences could be calamitous.

At this point we can't exclude anything but if the comments were coordinated then surely there will be more to come and the moves in the market will be much larger than the 100-pip rises in EUR and JPY on Tuesday.

What's more consequential than the size of the moves was the potential technical breaks. USD/JPY fell below the January lows to the worst since November. EUR/USD rose above the January highs to the best levels since early December. A third spot to watch is USD/CAD as the pair briefly broke key support at 1.30 and fell to the lowest since September.

In early Asia-Pacific trading, the BOC's Poloz has attempted to use some jawboning of his own to counteract the USD/CAD fall. In a rare direct comment on the currency, he said the recent rise in the currency was premature.

One spot that remains a wildcard is China and with Trump commenting on the yuan, we may get a chance to measure how assertive Beijing will be. 

Act Exp Prev GMT
Final PMI Manufacturing [F]
52.7 52.8 52.8 Feb 01 0:30
Chicago PMI
50.3 55.1 54.6 Jan 31 14:45
Final Manufacturing PMI [F]
55.1 55.1 Feb 01 14:45
ISM Manufacturing PMI
55.0 54.7 Feb 01 15:00
51.3 51.2 51.4 Feb 01 1:00
Eurozone Spanish PMI Manufacturing
55.1 55.3 Feb 01 8:15
Eurozone Final PMI Manufacturing [F]
55.1 55.1 Feb 01 9:00
Germany Final PMI Manufacturing
56.5 56.5 Feb 01 8:55

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