Dollar drops on reports China rethinks US debt purchases
Fawad Razaqzada January 10, 2018 1:16 PM
The dollar, US bond prices and stock index futures all tumbled as safe haven gold and yen jumped on the back of a report that China is considering reducing or halting its purchase of US government debt. Bloomberg reported that "officials reviewing China’s FX holdings have recommended slowing or halting purchases of US Treasuries, according to people familiar with the matter." Although this is yet to be confirmed, speculators took no chances and sold the dollar as China – along with Japan – are the biggest foreign holders of US debt. Thus any decisions to reduce their holdings of US debt could have significant consequences on Treasuries, and in turn the dollar. Apparently, the Chinese consider US government bonds to have become less attractive compared to other assets.
US CPI and retail sales could provide further volatility for USD
The dollar will remain in focus this week ahead of the release of US CPI and retail sales on Friday. So far, the greenback has shrugged off positive developments in the US as the market’s expectations about future Fed rate hikes are well anchored, at a time when other key central banks are slowly turning hawkish, too. Thus for the dollar to change its course we will either need to see a notable and sustainable improvement in US macro data, or a significant deterioration in economic data elsewhere to discourage the likes of the ECB and BoE from tightening their monetary policies. Otherwise, the dollar may remain largely out of favour, which may actually be good news for buck-denominated gold and other safe haven assets.
Pressure mounts on USD/JPY
Today’s news out of China helped to push the already under-pressure USD/JPY further lower. The yen has rallied sharply this week after the Bank of Japan trimmed the amount of long-dated Japanese government bonds it buys. As a result of the dollar’s ongoing weakness and yen’s renewed strength, not to mention the slight risk-off tone in the stock markets, the USD/JPY has broken below key support at 112, a level which could turn into resistance upon a potential re-test. As things stand, it looks likely that the USD/JPY will go on to break down below the next area of support around the 110.85-111.00 range. If so, the bears may then aim for the Fibonacci retracement levels at 110.15 (61.8%) and 108.90 (78.6%) as their next objectives. Meanwhile any move back above this year’s opening price level of 112.68 would probably mark the end of the near-term downward trend. In this potential scenario, the USD/JPY could head towards 114s or 115s again.
Source: eSignal and FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.