USD Speeds up Momentum

The US dollar rally since mid-July has been impressive but on Monday it was downright scary. The USD was easily the best performer on the day while the pound languished on referendum fears. The BOJ minutes and some second tier releases are due next. Our Premium Insight trades currently include USDCHF, EURJPY, AUDUSD, NZDCAD, with USDCHF +150 pips in the green.

We warned yesterday that “the fundamentals are so divergent between the US and its major rivals that unless the economic story changes, any USD selling will be temporary.” Today we learned just how much the market is falling in love with dollars.

Asset managers and hedgers who sat on the sidelines during last week's ECB drama and non-farm payrolls jumped into the fray. What started as started as selling in cable turned into selling everything against the dollar.

The late-day move started in USD/JPY as it broke last Thursday's high of 105.71 and then quickly broke through 106.00. Dollar buying then spread to commodity currencies and eventually to EUR/USD as it fell 50 pips to 1.2880 in an hour. The EUR/USD daily RSI eventually fell to the lowest since the depths of the 2008 crisis. In the end, nothing was spared the wrath of King Dollar.

Overall economic news was light but US consumer credit surged to $26B, easily beating the $17B expected in a sign of better willingness to borrow and lend.

Up next on the schedule are the BOJ minutes from the Aug 8 decision and the tertiary industry index, which is expected to rise 0.2%. At 0130 GMT, Australian housing finance data is due but it's unlikely to move the market.