Belting them up - the US dollar is still strong

Originally published by AxiTrader h2 Quick Recap/h2

The US dollar is still kicking butts and taking names across global forex markets. Sure the Aussie gained a little of its lost poise and is back above 74 cents but the Yen is weaker again with USDJPY at 113.31 this morning, euro is down at 1.0550 – which is better than it was earlier and Asian and other EM currencies remain pressured.

Naturally stocks in the US are closed but European markets had a positive night and that, along with the metals rally, and a broker up grade of Rio Tinto Ltd (AX:RIO) to $66 has the futures traders on the ASX marking the SPI higher this morning by 16 points.

Ohhh, and OPEC IS edging toward a deal.

• The US dollar’s surge is causing some real ructions in emerging markets. Turkey’s central bank raised rates from 7.5% to 8% but the lira still got slammed making another record low and USDTRY sits at 3.4439 this morning.

• I could write about this forex market move for the US dollar forever. But given time and space constraints let me reiterate - these moves in EM currencies look overdone in the short term they are likely to remain under pressure for some time. The reason I say this is because EM was a safe harbour for capitol with a decent return or prospect of capital growth in a world where developed market economies were mired in the low growth low rate world. Trump appears to have caused a phase transition in expectations about relative growth and inflation and that means relative attractiveness.

• So the constant flow into EM we’ve seen for the past 6 months now suddenly is trying to get out and is causing a bottleneck which is driving currencies to their weakest levels in years. There will be a hiatus, and Trump may yet prove a disappointment. But time is on the US dollar’s, not emerging markets, side.

• Anyway, elsewhere

• The OECD is calling for more public spending and growth friendly policies. This is why Trump comes at such a good time to get traction and to be given the benefit of the doubt. Central banks were already saying a year or more ago they can’t do it all and we saw that the G20 in China this year made similar comments. That meant that finance ministers and Treasurers themselves knew that fiscal spending was coming. So Trump resonates.

• China is getting serious about the $2.9 billion in off-balance sheet wealth management products in the shadow banking system it seem. Reuters reports the CBRC , demanded banks apply a more "comprehensive" approach to cover "substantive risks" related to off-balance sheet activities, or shadow banking.

• Also China is keen to step into the TPP breach and promote trade deals. It's going to be an interesting 4 years for geo-politics.

• It looks like it is going to be a good day ahead for local stock traders after a quieter index performance yesterday. Naturally with gold under pressure there was some pain for the gold miners but a broker upgrade to Rio and continued strength in the metals sector will help the miners more broadly it seems.

• So, to the outlook. Futures were up 20 points earlier suggesting that the market might be able to breach and hold above 5500 to close the week very bullishly. But the SPI is only up 13 now suggesting the 5500 level that would not break a few months back on the physical ASX might still be a big hurdle. But if it can we could see a nice run next week.

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• Naturally there is still a lot of resistance at 5500. Yesterday's physical high was 5503 before the close at 5485. And there is also a ot of doubt that the rally in Shanghai metals can last. But there is also some money on the sidelines. Time will tell.