Incisive market commentary from David Morrison

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EURUSD breaks above resistance - PM Bulletin
31 Jan 2017
Equities recover after Monday’s sell-off - AM Briefing
31 Jan 2017
Trending markets and Andrews’ Pitchfork -Trading Guide
30 Jan 2017
Investors rattled by Trump’s curbs - AM Briefing
30 Jan 2017
Dow holds above 20,000 as dollar firms - AM Briefing
27 Jan 2017
Dow breaks above 20,000 - Video Update
26 Jan 2017
Dow at 20,000 boosts risk appetite - AM Briefing
26 Jan 2017
Dow finally breaks 20,000 - PM Bulletin
25 Jan 2017
Wall Street leads stocks higher - AM Briefing
25 Jan 2017
Consolidation continues - Video Update
24 Jan 2017
Dollar recovery helps lift sentiment - AM Briefing
24 Jan 2017
Money management and stop-losses -Trading Guide
23 Jan 2017
Stocks fall on US protectionism fears - AM Briefing
23 Jan 2017
Trump inauguration in focus - AM Briefing
20 Jan 2017
A look-ahead to Trump’s inauguration - Video Update
19 Jan 2017
ECB President Draghi’s press conference in focus - AM Briefing
19 Jan 2017
Dollar steadies after sell-off - Video Update
18 Jan 2017
Equities drift in featureless trade - AM Briefing
18 Jan 2017
Dollar pull-back lifts precious metals- PM Bulletin
17 Jan 2017
Dollar slumps in early trade - AM Briefing
17 Jan 2017
Charting analysis for beginners - Trading Guide
16 Jan 2017
Sterling slumps on “Hard Brexit” concerns - AM Briefing
16 Jan 2017
Earnings in focus - AM Briefing
13 Jan 2017
Fourth quarter earnings in focus - Video Update
12 Jan 2017
Market Info Update: Martin Luther King Day Monday 16th January 2017
12 Jan 2017
Dollar lower as Trump skips stimulus talk - AM Briefing
12 Jan 2017
Trump news conference - Video Update
11 Jan 2017
Trump press conference in focus - AM Briefing
11 Jan 2017
Has gold turned a corner? - PM Bulletin
10 Jan 2017
Another mixed start for Europe - AM Briefing
10 Jan 2017
Trading Psychology - Trading Guides
09 Jan 2017
Sterling slips on "Hard Brexit" fears - AM Briefing
09 Jan 2017
Non-Farm Payrolls in focus - AM Briefing
06 Jan 2017
Non-Farm Payroll look-ahead - Video Update
05 Jan 2017
FOMC minutes viewed as hawkish - AM Briefing
05 Jan 2017
Look-ahead to release of FOMC minutes - Video Update
04 Jan 2017
FOMC minutes in focus - AM Briefing
04 Jan 2017
Strong start to 2017 - PM Bulletin
03 Jan 2017
Equities push higher in first session of 2017 - AM Briefing
03 Jan 2017
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 Tuesday 17 January 2017

Dollar slumps in early trade - AM Briefing



Early moves

- Dollar down against all the majors

- Theresa May’s Brexit speech in focus

The US dollar is sharply lower against all the majors this morning. The sell-off has led to a rally in precious metals with gold pushing further above support around $1,200 and silver up over 1%. In addition, the GBPUSD has recouped most of yesterday’s losses despite the expectation that Theresa May will promise a clean break from the European Union in a speech later today. It is unlikely that Mrs May will go into details ahead of negotiating the UK’s exit from the EU. However, she is expected to make it explicit that her government will insist on taking back control of immigration from the European Union and bring to an end the supremacy of the European Court of Justice over UK law. These two requirements make it more than likely that the UK will also quit both the Single Market and Customs Union - a position described by many as a “Hard Brexit.”

It was not immediately obvious why the dollar is down today across the board. The selling began soon after Asian Pacific markets opened and continued into the European open. The Dollar Index is now down just under 3% since the beginning of the year when it hit a 14-year high. There is some chatter that Donald Trump is set to face a barrage of criticism at the World Economic Forum in Davos. Chinese Premier Xi Jinping is scheduled to speak later today - the first time a Chinese leader has attended. This comes just days ahead of Trump’s inauguration on Friday and this provide an opportunity for China to respond to Trump’s recent criticism.

Stock Index Update

- FTSE100 breaks winning streak

- Index backs off from record close

European stock indices ended lower yesterday giving back some of their gains from the end of last week. The UK’s FTSE100 was firmer on the open but drifted as the session progressed. It went on to break its winning streak of 12 successive record closes and ended the session 10 points lower. This was despite the sell-off in sterling which typically gives the FTSE100 a lift. This is due to the heavy weighting of multinationals within the index. A weaker pound helps to lift overseas sales while profits also get a boost when converted back into sterling.

Yesterday’s sell-off in sterling followed fears that the UK government is set to pursue a hard exit from the European Union. This led to a general “risk-off” move which saw investors dump equities and head into “safe haven” financial assets such as the dollar, gold and Japanese yen. But trading volumes were light as many US traders were away for Martin Luther King Day. Consequently, we should get a better idea of how investors view these developments and the market reaction to them when the US reopens. Prime Minister Theresa May is set to deliver a key speech on the UK approach to leaving the EU later today.

Commodities Update

- Crude drifts in quiet session

- Gold higher on safe-haven flows

Crude spent most of yesterday’s session trading in negative territory. There was some renewed speculation that OPEC members were set to fail in their attempts to cut output by 1.2 million barrels per day (bpd) as agreed at their last meeting at the end of November. At the same time, non-OPEC producers (led by Russia) promised an additional 600,000 bpd of cuts.

Then early yesterday it was reported that Saudi Arabia saw no need to extend the planned production curbs beyond June. Saudi oil minister Khalid Al-Falih claimed that oversupply would no longer be a problem by then. However, Bloomberg has crunched data from the International Energy Agency which suggests that the planned cuts would need to stay in place until the end of this year to eliminate the current global supply glut.

Gold pushed back above $1,200 yesterday after failing to hold above here last week. The area around here has acted as resistance recently and bulls are now hoping it can turn into support. Gold got a lift from a burst of safe-haven demand which began early on Monday when Asian Pacific markets opened for business. Traders trimmed their exposure to equities and bought precious metals, the dollar and Japanese yen. The move came as sterling fell sharply on fears that Prime Minister Theresa May is on the verge of announcing that her government is ready to take a hard line in Brexit negotiations with the European Union. Mrs May is expected to clarify her position in a speech later today.

Forex Update

- Sterling slumps on fears of “Hard Brexit”

- Japanese yen rallies on safe-haven buying

Sterling fell sharply yesterday in a move that saw the GBPUSD break below 1.2000 for the first time since last year’s “flash crash” in October. The sell-off came on the back of fears that the UK government is ready to take a hard line over Brexit negotiations. This would see the UK curb migration from the European Union and bring to an end the supremacy of the European Court of Justice over UK law. These two requirements make it more than likely that the UK will also quit both the Single Market and Customs Union. Prime Minister Theresa May is expected to set out her government’s position in a speech later today.

Cable is now down 20% since the eve of the UK’s referendum on EU membership in June. Last night it posted its lowest close against the US dollar since 1985. Sterling made losses against all the majors although this only took the EURGBP rate back up to levels last seen back in early November, straight after the US presidential election.

Yesterday also brought big gains for the Japanese yen. The USDJPY broke below 114.00 at one stage to post its lowest intra-day level since the beginning of December. This was all part of a general “risk-off” move which brought overall gains for the dollar, yen and precious metals. This was seen as a welcome respite for the US dollar which came under concerted selling pressure last week. Investors dumped dollars in the wake of Donald Trump’s news conference on Wednesday. The dollar sold off after Trump failed to mention his plans for tax cuts, infrastructure spending or regulation roll-back.

Upcoming events

Today’s significant economic data releases include UK CPI, RPI and the Conference Board Leading Index. Later on we have German and Euro zone Economic Sentiment and from the US we have the Empire State Manufacturing Index. Also taking place is the World Economic Forum in Davos. Prime Minister Theresa May is set to outline the government’s plan for withdrawing from the European Union and we have speeches from FOMC-voting members William Dudley and Lael Brainard.


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Posted by David Morrison

Category: AM Bulletin

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