DailyFX
Dollar Still Dives Through Stock Market Collapse
John Kicklighter

Talking Points:

  • Dollar Still Dives Through Stock Market Collapse

  • Euro: Does Weak Inflation or EURUSD at 1.4000 Move the ECB?

  • Japanese Yen Crosses Slip on Risk but Shy from Equities’ Momentum

Dollar Still Dives Through Stock Market Collapse

If this past session was running on a ‘risk aversion’ theme, someone forgot to tell the dollar to don its safe haven cloak. The S&P 500 led a global equity selloff this past session with a 2.1 percent tumble – its steepest in two-months. It will take a substantial level of ‘fear’ to revive the greenback’s liquidity appeal; but with the US index pressuring a prominent level of support to its most recent bull run to record highs, there was perhaps the opportunity to hit that extreme. Yet, the performance between currency and index couldn’t have been more different. Compared to the severe and negative move in stocks, the dollar was controlled and heading lower. A better driver for the currency seems to be the fifth straight drop in mid-term Treasury yields (easing rate forecasts). Bulls need either a more symbolic risk drop or strong CPI data next week.

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Euro: Does Weak Inflation or EURUSD at 1.4000 Move the ECB?

EURUSD advanced Thursday and is now working on its first five-day run since mid-December. The quick reversal from this benchmark currency pair has driven us back up to 1.3900 and the put us in the same vicinity that provoked ECB President Draghi into making the connection between exchange rates and monetary policy last month. On March 13 – on a day when the pair pressed a multi-year high just 35 pips short of 1.4000 – the central banker commented that a high Euro contributes to weak inflation. Yet, that warning didn’t necessarily send the currency reeling – that was accomplished later by the FOMC when they announced their policy assessment. The market looks intent once again to press European authorities on the point. Capital is flowing into the region seeking higher rates of return and diversification. If the inflation update next week or another Draghi effort aren’t realized, EURUSD may slowly work its way to 1.4000 and a nest of entry/stop orders.

Japanese Yen Crosses Slip on Risk but Shy from Equities’ Momentum

The fire continued for the yen crosses this past session with the pairs falling another 0.1 to 1.0 percent (CHFJPY to CADJPY) this past session. As broad as this move was, though, it is worth noting that it was measurable less severe than the move on Tuesday. That is something of a surprise for those watching risk trends, as these low-yielding but expensive carry pairs maintain an especially strong correlation to benchmark sentiment measures. This morning, the Nikkei 225 is down another 2.0 percent – bringing the week’s plunge to an impressive 7 percent while the index sets a six-month low. In hesitation from USDJPY, EURJPY and GBPJPY; we seem the same reluctance to take the next big step over the cliff that stocks have shown. The difference is that the yen pairs were closer to their break point.

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