July 2017

July 28, 2017 (Tempus, Inc.) – The U.S. Dollar weakness continued following the release of Gross Domestic Product and Personal Consumption figures. GDP quarter-over-quarter growth for Q2 came in at 2.6%, just under the estimated 2.7% while Personal Consumption grew at its forecast 2.8% pace.

However, only Personal Consumption numbers in the first quarter were revised upward while the opposite occurred for GDP. Also worth noting is that Core PCE (Personal Consumption Expenditures), the Fed’s favored way to gauge inflation, improved to 0.9% over the expected 0.7%, however, worse in Q1 than thought. Overall, the slate of statistics signals that economic progress is just barely around the forecast and may not be good enough to surge the greenback against most counterparts, especially a much appreciated Euro.

We’ll see if the University of Michigan Sentiment index helps at 10AM or further sinks the buck. Chances of a hike in September are as low as 4.1% and December is not guaranteed at 41.8%. Will the economy be able to handle further monetary tightening? Stay tuned next week as Fed officials give us plenty of opportunities to explain their thoughts throughout.


The Euro remains on a path to similar appreciation as the dollar experienced in 2014 based on excellent numbers out of France and Spain. GDP in France grew 1.8% over the expected 1.6% annual pace, its longest streak of improvement since 2011. Additionally, Spain is growing at 3.1% yearly pace, the fastest since 2015.

There seems to be little resistance to Euro strengthening now that the value is based on real prosperity, the result of a more disciplined fiscal structure and easing methods from the European Central Bank that may soon be retrieved, only guaranteeing that the Euro stays afloat long-term. The Euro crushed the dollar in July, improving by 3.3%.


The Pound remains steady as it has an imbalance in the economy. Housing sector is struggling, companies are making plans to leave London’s financial center, but Retail Sales are great as revealed yesterday.
Overnight, however, we learned that GfK Consumer Confidence fell to its lowest reading since the Brexit referendum, once again showing that there is anxiety within the confines of the United Kingdom. Although GBP is up 2.1% for the month, these poor indicators could mount enough pressure to reverse these gains in the upcoming months.



July 21, 2017 (Tempus, Inc.) – The beleaguered U.S. dollar was unable to stage a meaningful comeback overnight after taking heavy losses during yesterday’s sessions.  The dollar has been hampered recently by slowing economic indicators and the failure of the U.S. government to pass any meaningful legislation which casts doubt on the ability to eventually pass pro-dollar initiatives like infrastructure spending or tax reform.

The straw that broke the dollar’s back came yesterday as Bloomberg News broke a story that claimed special prosecutor Robert Mueller has expanded his Russia investigation to include President Trump and his business associate’s business dealings from even before the President had serious political aspirations.   As the story broke, the U.S. Spot Dollar Index fell off a cliff and the greenback sunk to a 2.5 year low against the Euro.

Yesterday’s data was also disappointing with the Philly Fed manufacturing index falling.  There is no major economic data or Fed speakers scheduled for today.  Therefore, the dollar will hope to avoid new Russia headlines and head to the weekend licking its wounds.


The Euro was a train barreling down the tracks during yesterday’s session despite mostly dovish commentary from ECB President Mario Draghi.  The European Central Bank left interest rates unchanged, which was widely expected.  In a press conference following the decision, the central bank head reiterated that the bank’s easy monetary policy is still appropriate, throwing cold water on speculation that the ECB is close to tightening policy.

Nonetheless, the common currency benefited from breaking Trump/Russia news on the other side of the pond.  The Euro rallied and broke technical levels of the May 2016 high.  The Euro’s run ended with the currency at its strongest level since January 2015 against the U.S. dollar.


The Australian dollar was one of the only major currencies that failed to rise against the besieged greenback.  Reserve bank of Australia Deputy Guy Debelle said in a speech today that just because an increase in other central bank’s policy rates doesn’t “automatically mean” that rates in Australia need to rise. Aussie OIS show traders are now only pricing in a 20% chance of a rate hike by December of this year, down from 33% yesterday.

The Aussie rallied early in the week after minutes from the RBA’s July meeting suggested growth is picking up.  The currency has since given up some of those gains.

July 20, 2017 (Tempus, Inc.) – The U.S. Dollar is trading in wild ranges this morning as markets react to the European Central Bank’s decision to delay any monetary policy tightening. Shockingly, the Euro is up as ECB President Mario Draghi is explaining that QE will not be changed and that officials are still committed to expanding and extending the program as needed, yet none of this is having a negative effect.

In fact, he admits that inflation is dragging, but feels very confident on the strength of the economic recovery. Basically, it looks like Draghi and other members felt the fall will provide all the necessary data and analysis that provide enough confidence to act on increasing interest rates without jeopardizing the progress being made.

Overall though, the U.S. Dollar is faring better across the board with positivity built from good housing numbers. The greenback also was not affected tremendously by the Bank of Japan’s announcement in which they upgraded their GDP forecasts, but lowered their inflation expectations, again. It seems like tapering of easing measures will happen everywhere, but in Japan.


The Euro is trading in wild ranges, swinging within a 75-point range as markets gauge the ECB’s thinking. As expected, rates were not changed, but there seems to be a counterintuitive correlation between the dovish tone of delaying action and the Euro appreciation we are seeing. ECB’s Draghi sounds very cautious yet optimistic.

Furthermore, he said that tighter financing conditions are “the last thing” the ECB wants. As we interpret it, the Euro deserves credit and its value reflects the lack of political calamity that once seemed possible for the continent as well as the economic strengthening that has spread beyond Germany. The ECB just wants to keep enjoying the show and go on vacation.


The Pound weakened by over half a percent following a lack of agreement on the amount the UK must pay the EU with a now very intense French delegate’s demand that they pay big time. Prime Minister Theresa May is already under a lot of pressure, but now she must explain to Parliament that the EU is serious about payment of obligations before any trade deals is possible.

Bruno Le Maire, France’s Finance Minister, even went as far as quoting former British Prime Minister Margaret Thatcher in saying, “We want our money back.” The tensions play poorly for a Brexit team struggling to have a cohesive message in the face of EU lawmakers ready to make the divorce proceedings punitive.


July 15, 2017 (Tempus, Inc.) – The U.S. Dollar is pivoting downward following the release of truly disappointing inflation and retail sales data. Monthly Consumer Price Index figures showed no expansion and the year-on-year CPI increased by 1.6% under the estimated 1.7%, which suggests inflationary growth is not increasing near the desired pace by the Fed of 2.0%.

Furthermore, Retail Sales really surprised us with contraction instead of any improvement, which economists expected. June’s numbers were supposed to show 0.4% growth, but fell by (-0.1%). At the time of writing, the Bloomberg Dollar Spot Index was headed towards a half percent loss immediately after the indicators hit the wire.

Fed Head Janet Yellen’s testimony this week to the congressional Housing Committee already cast doubt on the economy and the Fed’s approach to future hikes, but these numbers certainly lower the chances of a Fed rate increment by end of the year to just 43.9%. With distractions in Washington as political infighting takes over headlines and the economic reality of poor consumption, the greenback is starting to feel the pressure and we see little chance of much recovery from current ranges in the next few weeks.


The Euro is now up 1.1% for the month of July, slowly but surely appreciating as a result of better economic performance and hopes of monetary policy tightening. Today happens to be Bastille Day in France, so we may not get much in terms of news out of the Old Continent. CPI numbers for Italy came out as predicted, so if even Italy has growth it does not bode well for the buck against the shared currency, which could climb further as the day goes on.


The Pound is on the rise also as a result of poor economic performance in the United States. Additionally, Bank of England’s Ian McCafferty sounded the trumpet of hawkish sentiment after he expressed his belief that the central bank should start winding down some its sovereign bond purchases from QE.

It would be way too early to take such action since rates have not been increased and would require levels near where the Fed is. However, this discord between BOE members is convincing traders that the bank will likely not maintain its easing stance much longer.

Brexit-wise, Britain has finally admitted on paper that indeed an amount of money will need to be paid for the divorce process to start going, if possible in any way, somewhat smoothly. The EU has estimated a required payment of about EUR 100.0 billion. While many surrounding PM Theresa May disagree with the quantity, it is an important step toward talks getting better and with less friction.

July 11, 2017 (Tempus, Inc.) – The U.S. Dollar was trading in positive territory yesterday, holding on to the minor gains experienced at the end of last week once the employment Situation revealed a consistently improving labor sector.

Today, however, most of the buck’s counterparts pushed higher fluctuating around their strongest levels since last summer, with the EUR reaching a new 14-month high slightly below the 1.15 mark.

Ultimately, the greenback will need to see stellar developments in consumption and perhaps signs of confidence from statements by Fed officials who’ll speak throughout the week.

The G-20 summit came to a close with some minor policy progress, but highlighted by the growing difference in approach to problems such as North Korea and discord with climate change agreements between the U.S. and some of the global community. We shall see if central banks around the world continue to work towards tightening with the Bank of Canada meeting on Wednesday.


The Euro did not falter much after Friday’s good news out of the U.S. This week brings individualized country data such as Industrial Production and Consumer Price Index figures from Germany, France and Spain that could move the needle in the shared currency’s favor if impressive.

Economic indicators are the primary cause of the Euro’s recent surge, along with potential European Central Bank tightening. Any near-term suggestion that the continent is ready for a reduction in QE prior to the program’s full completion in December will certainly result in further Euro strengthening, which we feel, is possible for Q3.



The Pound slid at the end of last week and continued to flounder overnight based on, once more, poor economic numbers out of Britain and a gloomy Brexit future. Industrial output, manufacturing, and construction are indeed not just lagging, but also contracting.

Furthermore, a study of what would occur if the UK were to pay World Trade Organization tariffs for EU-produced goods showed that an English breakfast would go up in price by close to 15.0% as things such as olive oil and orange juice could represent an additional 30.0% in importing costs.


July 9, 2017 (Commerzbank AG) – Will Draghi’s taper bluff succeed?

The ECB will soon have to reduce its bond purchases even though its policy goals have not really been attained. To avoid this being regarded as weakness, the ECB is increasingly likely to highlight the improving economy. And chances are it will be successful with this bluff.

Forecast changes: Stronger growth in the Eurozone

On our monthly forecast meeting we raised our growth forecast for the Eurozone. We now expect an increase of real GDP by 2% in 2017 (up from 1.8%). Other forecasts were mostly confirmed.

Outlook for the week of 10 to 14 July 2017

  • Economic data: For the Fed, the fact that inflation is not rising remains a major concern. Progress towards the inflation target will remain slow. In the euro zone, industrial production looks set to have stagnated in May, despite buoyant sentiment.
  • Bond market: While pending data releases out of major economies will impact markets late next week, Yellen’s testimony before the Congress at mid-week could kick off more upward pressure on long-term sovereign bond yields.
  • FX market: ECB President Draghi is making use of the more optimistic economic outlook to signal an exit from the ultra-expansionary monetary policy. In fact ECB rate hikes will only start supporting the euro towards the end of next year, however.
  • Equity market: Led by speculation over an ECB exit from its expansionary policy, volatility in the German equity market temporarily rose last week. This reversal in monetary policy should weigh on debt-ridden stocks, in particular, and the rate-sensitive real estate sector is likely to also come under pressure.
  • Commodity market: The three energy agencies will probably point to a more gradual reduction of the high oil stocks. But following the recent production numbers, this will barely move oil prices.

July 3, 2017 (Commerzbank AG) – FX options market in the doldrums

The FX options market is experiencing the summer doldrums even though EUR/USD has moved sharply upwards in recent days. Exchange rate options are trading on the basis of their lowest implied volatility since 2014. In our view, FX volatility will only show any sustained pickup once inflation expectations rise and central bank monetary policy switches away from its current passive setting.

Falling oil prices: OPEC’s strategy put to the test

Oil is now as cheap as it was before production cuts started in November 2016. Prices could fall even more in the short term if the markets decide to test the resolve of OPEC and the US shale oil industry. But with demand in Q3 likely to exceed supply, prices should pick up again. We maintain our year-end Brent forecast of $48 per barrel

Outlook for the week of 3 to 7 July 2017

  • Economic data: US employment in June looks set to have risen visibly after the May calendar effects unwind, although payroll gains are likely to slow due to demographic reasons over the medium-term.
  • Bond market: Markets are likely to remain jumpy following the latest volatility tantrum in euro benchmark rates and a raft of big US data releases. We believe 10y Bund yields will test the upper boundary of a sideways range centred on 0.5% with risks skewed for a break to the upside
  • FX market: The euro is gaining sharply in the wake of an unintentionally hawkish speech by ECB President Mario Draghi. But the EUR-USD exchange rate is also supported by a Fed which appears to have recently become rather cautious.
  • Equity market: Germany should see ongoing M&A activity in the coming months, supported in part by the positive equity market trend.
  • Commodity market: With US output rising again, oil prices seem set to fall next week. Gold could show further weakness next week and weak US car sales may trigger the price correction we are expecting for palladium.

July 4, 2017 (Howard Friend, Portfolio Manager ATFX Europe) – The recent decline in the value of the US dollar must have come as a bit of shock to most market participants as it flew in the face of the conventional wisdom which has prevailed since the financial crisis of 2008.

In the aftermath of the crisis the US dollar suddenly found favour as bout of `safe haven` buying effectively put a floor in place under the market with subsequent attempts to break lower in 2009, 2010 and 2011 all being met by very strong demand around this price level.

A period of stability then ensued culminating in the low volatility environment witnessed between 2012 and early 2014 which was followed by a powerful advance starting in H2 2014 which skewed market psychology firmly in favour of the US dollar bull camp which is broadly where we stand today. Here is a chart of the Trade Weighted USD courtesy of the Board of Governors of the Federal Reserve System.

Being a long-time observer of market price dynamics one can`t help getting a sense of déjà vu when looking at the chart of US dollar index as it bears a very familiar Elliott Wave price structure to one seen not so long ago.

Since topping out in 1985 the US unit has been trending broadly lower. The first leg of the bear market was quite dramatic in that bounces were relatively shallow as selling pressure weighed down on the price resulting in a sharp decline with very powerful momentum characteristics. This first phase (which I will call the “momentum” phase) based out in December 1987 and then a good-sized recovery ensued over the next 18 months which I have labelled as the (a) leg of an a/b/c Elliott Wave (bear market) correction.

After the (a) leg topped out in June 1989 the bear market resumed but a subtle change occurred as each push to a new low for the trend formed a so called “overlap” as it was followed by a powerful counter-trend rally which eclipsed the previous swing low. I have termed the (b) leg as the “choppy decline” phase of the bear market.

After basing out in April 1995, the (c) leg got underway lasting some six years before a top formed to complete the entire a/b/c (bear market) correction paving the way for the next phase of the long-term downtrend.

Hitting the fast forward button and turning to more recent price action we can see that a similar structure unfolded from the 2005 swing low (labelled “MOM LO”) to the January 2017 swing high. The (a) leg rebound from “MOM LO” (as in 1988/89) saw the strongest advance of the bear cycle to date which was followed by a choppy, overlapping decline (“choppy decline”) to new lows for the downtrend in the (b) leg of the pattern which finally based out in May 2011 at the all-time low.

The rally from there broke down into five sub waves as it usually does in the (c) leg position, with the breakdown from this January`s peak seen as the initial stages of a new multi-year downtrend for the US dollar.

In addition to my reading of the Elliott Wave price chart structure there are other supporting factors which favour a lower USD going forward.

Since President Nixon scrapped the Bretton Woods Agreement in 1971 and in particular since the late 1980s there has been a clear bias for Republican Administrations to preside over a weaker currency. The US dollar has declined in value by close to 14% over the combined terms of Republican Administrations while it has risen by an average of 15% when Democrats have been in power.

The current incumbent has stated a strong desire to address what he sees as an unfair advantage his trading partners have over the United States via a weak currency so a weaker US dollar may not meet with too much displeasure in Washington DC.

Long-term cycles

Since becoming a free-floating currency, the US dollar while seeing a gradual decline in value against its main trading partners, has seen some very powerful multi-year price swings in both directions. Since August 1969 there have been six major price swings lasting an average 7.9 years and seeing a typical change in the value of the US dollar of some 67%.

At the January 2017 peak, the USD had been rising for five and a half years since the all-time low and over eight years since the 2008 financial crisis in a move which saw a net gain of around 54%. The extent and duration of the recovery in the US unit placed it in a highly vulnerable position, i.e. ripe for a bearish turn in major trend.


The recent crack in the armour of a previously impregnable US dollar may be dismissed as “corrective” or “temporary” by those who are unable or unwilling to consider changing their inherently bullish bias to the world`s reserve currency. However, as Bob Dylan once said, “The Times They Are A Changing” as evidence from many quarters points to the dawn of a not so new multi-year downtrend in the U.S. unit.

A devaluation of 20 to 30 percent from current levels against the major currencies would not be out of the question and may well turn out to be a conservative estimate of what one can expect if history is anything to go by. Don`t get caught fighting the last war…