From Marc to Market:
As he said on the 26th: Dollar Correction may be at Hand, but likely Brief and ShallowAs soon as markets opened in Asia, the greenback was sold, and corrective forces that had been nipping below the surface took hold. The euro, which had finished last week below $1.0590, rallied nearly a cent. Before the weekend, the greenback had pushed to almost JPY114, an eight-month high, before closed near JPY113.20. It was sold to almost JPY111.35 in early Asia. Sterling extended last week's gains and briefly poked through $1.2530, to reach its highest level since November 14.There were no fundamental developments that sparked the move. However, as we had noted, the dollar's technical condition was stretched. The key macro considerations remain intact. Barring a surprisingly poor jobs report at the end of the week, the Federal Reserve is on track to hike rates in a few weeks, and the prospect is for fiscal stimulus next year, even if the precise details are not known. Meanwhile, the combination of European politics (Austrian election for President and Italy's referendum this weekend) and the prospects for the ECB to extend its asset purchases program, with possible tweaks to the rules to address the scarcity of some securities (including securities lending rules) undermines weighs on the European complex.The buying enthusiasm for the euro faded, and in the European morning, the euro had given back nearly half of the day's gains. A move below $1.0620, and especially $1.0580, may signal the end of the correction. The euro did close higher in the last two sessions. We've seen the widening interest rate differentials to be a key force, and note that even today, the two-year and 10-year US premium is slightly wider.The dollar began to recover against the Japanese yen in the Asian session and continued through the European morning. It was more than a yen off its lows by late-European morning turnover to approach JPY112.50, the area that offered support before the weekend. The US two-year premium is slightly wider, but the 10-year advantage is a touch smaller. Boost by utilities and financials, the Topix added 0.35% to extend its advancing streak for a 12th consecutive session. Although it recovered from earlier losses, the Nikkei was not as fortunate. Its minor loss snapped a seven-day advance.Sterling cannot get out of its own way. It rose in four of last week's five sessions but is giving back those gains today. From the high set in Asia to the low in the European morning, sterling shed nearly a cent and a quarter before finding support near the pre-weekend low. It has not traded below $1.24 since November 23....MORE
