Trading Ideas For The Day – Marshall’s Daily Digest!

Dollar profit-taking

The dollar has gained a lot this week.

Fed Chair Yellen is likely to confirm what her colleagues have said about a likely rate hike in March, but will she go any further? Given the dollar’s good gains this week and the likelihood that she takes a more tempered view, USD could see some profit-taking today.

This would not be a change in the upward trend, however.

Commodity currency rebound

The counterpart to any dollar profit-taking might be some mean reversion in the commodity currencies.

COMEX copper prices are starting to bounce back a bit (but not gold & silver!). AUD could recover if commodities do as well.

USD continues upwards

The dollar continued to gain ahead of today’s speech by Fed Chair Yellen, who is expected to validate recent comments by her colleagues that a rate hike is imminent.

The market discussion has shifted from whether the Fed will hike in March to when the next hike will be. UST 2yr yields are now the highest they’ve been since 2009. Higher US rates=higher USD.

Commodity, EM currencies plunge

Commodity prices were under pressure and the commodity currencies were generally weak, led by AUD.

A 4.2% plunge in iron ore prices plus a collapse in the February services PMI to 49.0 from 54.5, indicating contraction, hit AUD. NZD was not far behind, with CAD holding up better (but still falling) after Q4 GDP beat expectations.

Meanwhile, all 18 EM currencies that I track fell vs USD as lower commodity prices and the prospect of higher US interest rates proved a double whammy for them.

Oil, Gold Down

Oil continued to fall on the same old story: higher US inventories vs lower OPEC production.

The field was tilted by news that US natural gas inventories rose in February for the first time ever, which shows how the warm weather is affecting the energy complex.

Gold fell as usual on the stronger USD and higher US rates. Silver fell even more than gold.

Today’s schedule

Final EU services PMI; UK services PMI; ISM non-manufacturing PMI; Chicago Fed President Evans & Richmond Fed President Lacker speak on a panel; Fed Vice Chair Fischer speaks; Fed Chair Yellen speaks on the economic outlook.