When the Levels Break

BIG MOVES - Wednesday's price action in the FX market was important. The breakdown in GBPUSD below 1.2345 was the first sign of the US Dollar making another big run and now we will wait for confirmation with a EURUSD close below 1.0500. The implications are rather significant as the move suggests that the striking yield differentials between the US Dollar and other currencies are too much to be denied, irrespective of whether or not the Trump government would like to see a weaker US Dollar to achieve its objectives. If the Euro now establishes back below 1.0500, it opens the door for a test of that much talked about parity level that so many had thought would not be challenged. 

RECONSIDERATION - It seems many out there have been doubting the ability for the Fed to move forward with rate hikes. This not without good reason of course. In recent years, the Fed has let down guidance calling for a more hawkish shift and just last year the Fed had signaled 4 rate hikes when it could only muster one hike late in the year. But now, with the Fed continuing to signal that it is on pace to actually follow through with its projections this year, and with Fed fund futures supporting the case for a March hike, the FX market is reconsidering its view of the Buck and once again rotating back into the Greenback as the market starts to take the Fed more seriously. While we could see the US Dollar find a top in the weeks ahead, for now, the Buck is back in the driver's seat. 

The market is starting to reconsider its US Dollar bets. Via @joelkruger

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