Thursday, March 25, 2021

Capital Markets: "US Dollar Firms Against the Euro and Yen, While the Dollar Bloc Finds Support"

 The DXY futures just hit their highest level of 2021:

A decline to 92 or so would draw a nice little cup-n-handle formation on the charts and possibly scare anyone with the effrontery to short the almighty dollar.

From Marc to Market:

Overview: The euro and yen remain under pressure, but the dollar-bloc currencies are finding a little better footing today as equities and bonds look for fresh direction. Oil has not sustained yesterday's surge and has come back offered, as it sheds a dollar a barrel. The prospects, although not imminent, of delisting Chinese companies weighed on local stocks, including Hong Kong. Indian shares also traded heavily, but other advances in the other large markets helped the MSCI Asia Pacific Index snap a four-day decline. The Dow Jones Stoxx 600 has been alternating in a sawtooth pattern between advances and declines for the seventh session. Yesterday saw a small gain, and today is working on a small loss. US shares have stabilized after the S&P 500 lost 0.5% yesterday and the NASDAQ tumbled 2%. The US 10-year yield is firm around 1.62%, while European yields are 1-2 bp softer. The Dollar Index is at its best level since last November and is pushing above the 200-day moving average for the first time since last May. While most emerging market currencies are lower, the large and accessible ones, like Russia, South Africa, and Mexico, are firmer. Note that South Africa's central bank rate decision is expected shortly. With soft inflation, the SARB is expected to keep the repo at 3.5%. The JP Morgan Emerging Market Currency Index has fallen by nearly 2% over the past three sessions and is steady today. Gold neared $1740 and found new sellers. Support is closer to $1725. May WTI is straddling the $60-area after recovering to close above $61 yesterday.

Asia Pacific
It will take some time, but the Biden administration is going forward with enforcing rules that require publicly listed companies to submit audits to the Public Company Accounting Oversight Board (PCAOB).
Congress requires that non-compliance for three-years is subject to suspension. China has refused on what it claims are national security grounds. Companies are also required to disclose whether they are under government control. The PCAOB is seeking public comment on the types of disclosures and documents that may be required. Reports suggest that this may have weighed on Chinese shares today, like Tencent, Alibaba, and Baidu.

As Japan's fiscal year winds down (March 31), there are the inevitable stories about the impact on the yen. Such claims ought to be taken with a large grain of sand. To paraphrase, it is easy to be fooled by randomness. It is true that the dollar has fallen against the yen in March for the past five years. But, it rose for the preceding seven years. Over the past 20 years, the dollar's performance is evenly divided between gains and losses. So far this month, the dollar has risen by around 2.3% against the yen. If sustained, it would be the largest move and the largest advance since 2010 when the greenback rose by 5% in March. In the past 20-years, the dollar moved in March, the same direction as February for 13 years. That might be a better pattern to bet on, though the null hypothesis (no relationship) still cannot be rejected with high confidence....