Intraday Market Thoughts

Why the Dollar Dived

by Adam Button
Jun 2, 2015 23:13

We look at three reason why the US dollar was battered on Tuesday and what it means. USD fell at least 0.5% right across the board while the Australian dollar led the way. A busy day is upcoming in Asia-Pacific trading, including Australian GDP. Ashraf's Premium Insights issued a new EUR-specific trade 3 mins ago with 2 rare charts, adding it to the long EURAUD, which is currently +110 pips in the green.

The catalyst for the initial move was the euro. Eurozone CPI was higher than expected but Greece was the main driver. Murmurs about a deal were abundant and that set off the squeeze a EUR/USD that caused so much dollar selling that it spread to other dollar pairs and began to feed on itself.

The reality of the Greek situation was much less clear. Greece and Eurozone creditors submitted competing proposals to each other and reports suggest a wide gulf remains. Dijsselbloem said creditors were 'still far from a deal' but the market believes otherwise.

The second reason for USD weakness – and the reason it turned into a rout – was positioning. The kind of we saw Tuesday is only possible on highly-unexpected news or when one side of the trade is overcrowded. CFTC positioning numbers have underscored the infatuation with USD and the recent one-way gains in the US dollar turned a crowded trade into an overcrowded one.

The final reason was a speech from Fed Governor Brainard. It's her first speech to touch on how she feels about the economy and monetary policy and it was abundantly clear that she's dovish. She fretted about consumer spending, exports, foreign demand and said the slowdown may be more significant than expected.

Despite the large moves in the dollar, it's no reason to change underlying views. The risk of a squeeze is ever-present in a trend and it's a reminder to manage risk. It comes down to economic data and perhaps the most-important news on the day was a strong report on US May autosales.

The focus will remain on economic data in the hours ahead. The main release is at 0030 GMT when Australia releases Q1 GDP data. The consensus is for 0.7% q/q growth. Estimates moved up in the past few days but it may just be a shift in timelines as capex intentions are falling. Fade moves on GDP, which is already 2 months old. At the same time, the BOJ's Shirai holds a speech.

Other data includes the Japanese Markit services PMI and HSBC China services PMI.

Act Exp Prev GMT
Net Exports of GDP (1Q)
0.5 0.0 0.7 Jun 02 1:30
Gross Domestic Product (Q1) (q/q)
0.7% 0.5% Jun 03 1:30
Gross Domestic Product (Q1) (y/y)
2.1% 2.5% Jun 03 1:30
Eurozone CPI Estimate (MAY) (y/y)
0.3% 0.2% 0.0% Jun 02 9:00
Eurozone CPI - Core (MAY) (y/y) [P]
0.9% 0.7% 0.6% Jun 02 9:00
Fed's Evans Speech
Jun 03 18:15
Markit PMI Composite (MAY)
56.1 Jun 03 13:45
Markit Services PMI (MAY)
56.5 56.4 Jun 03 13:45
ISM Non-Manufacturing PMI (MAY)
57.0 57.8 Jun 03 14:00
Markit Services PMI (MAY)
51.3 Jun 03 1:35
52.9 Jun 03 1:45
Eurozone Markit PMI Composite (MAY)
53.4 53.4 Jun 03 7:45
Eurozone Markit Services PMI (MAY)
53.3 53.3 Jun 03 8:00

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