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January 23, 2017 By Peter Boockvar

FX Markets

We know markets send messages every day. Sometimes it’s clear what it is but sometimes its noise. Either way, if only we can ask it and get the exact answer. I wish I could ask the FX market that trades about $5 Trillion notionally each day what its thinking. The euro heavy dollar index is trading at its lowest level since November 15th. Thus only 5 days separated from the day before the election that supposedly changed everything. Is it the belief that the Fed will continue to drag its feet in raising rates? After all, Yellen is still in charge. Is it over worries about tough trade talk and foreigners are selling? Could be. Is it the lingering effect from Trump’s dollar comment in the WSJ? Or maybe it’s just being driven by individual currency relationships with the dollar?

In response to that last rhetorical question, the British pound has a bid as Theresa May has finally laid out a plan. The CRB commodity index is just shy of the highest level since November 2015 and likely why the Aussie $ and Canadian $ both trade pretty well. The euro is rallying as we are two months from the flow of QE being slowed by 25%. DJ reported this on a Bundesbank report released today: “The Bundesbank said that three of the six biggest one day exchange rate drops in the history of the single currency were linked to the ECB’s bond purchases, known as QE.” The Brazilian Real is getting help from the commodity rally but also from the change in its government. The yen is higher by 3% over the past month but while I can’t pinpoint exactly why, it does come with a rise in the 40 yr JGB yield from .78% to .94% overnight which is 1 bp from the highest since March 2016. Lastly, the yuan has rallied this year after the PBOC took a whack to speculators which is evidence that at least for now, they said ‘no mas’ to the one way street of weakness.

The FX change does have implications for foreign stock markets as we know and in the Nikkei and FTSE 100 in particular as both have been trading directly inverse to their currencies and the Euro STOXX 600 has temporarily topped out as the euro bottomed. For the FTSE 100 especially, it is up 14% in pound terms since the day before the UK vote. It is down however by 3% in dollar terms since then.

For the markets this week it will be all about earnings but very relevant will be Friday’s Durable Goods report as capital investment is the key missing piece of the recovery and we’ll see how quickly, if at all, corporate decision making changed post election.

Filed Under: Latest Data

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About Peter

Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.

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Disclaimer - Peter Boockvar is an independent economist and market strategist. The Boock Report is independently produced by Peter Boockvar. Peter Boockvar is also the Chief Investment Officer of Bleakley Financial Group, LLC a Registered Investment Adviser. The Boock Report and Bleakley Financial Group, LLC are separate entities. Content contained in The Boock Report newsletters should not be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. The views expressed in this commentary should not be taken as advice to buy, sell or hold any security. To the extent any of the content published as part of this commentary may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. No chart, graph, or other figure provided should be used to determine which securities to buy or sell. Consult your advisor about what is best for you.

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