, in the Asian market on Tuesday (November 22), the U.S. dollar index bottomed out and rebounded after a fluctuating decline, trading at around 100.80. The dollar's upward momentum has slowed this week after posting its biggest two-week gain in a year and a half. Yesterday, the U.S. dollar index fell 0.3% on Monday (November 21) to close at 100.91. After Trump was elected president, the dollar received a big boost as investors bet that he would increase fiscal spending, which could trigger inflation and push up interest rates. However, with the arrival of Thanksgiving this week, trading in the foreign exchange market has become light, and many profit-taking orders have begun to emerge. Investors this week need to pay attention to a series of economic data and the minutes of the Federal Reserve meeting.
Strong earthquake in Japan, risk aversion helped the yen jump
It is worth noting that in early trading today, the yen fluctuated extremely violently, mainly due to the sudden 7.3-magnitude earthquake in Fukushima, Japan in the early morning , which triggered a rapid rise in risk aversion. , the yen jumped against the U.S. dollar, and Nikkei stock index futures priced in U.S. dollars fell to refresh the day's low. Other safe-haven assets, such as gold and U.S. Treasuries, also rose.
According to the Japan Meteorological Agency, at around 5:59 a.m. on the 22nd local time, an earthquake with a predicted magnitude of 27.4 on the Richter scale occurred in the waters of Fukushima Prefecture, with a focal depth of 25km. The previous forecast level of the Japan Meteorological Agency was 7.3 on the Richter scale. The Meteorological Agency issued a tsunami warning for most areas along the northern Pacific coast of Japan, and local people were evacuated to the mainland of Japan.
The Japan Broadcasting Corporation (NHK) reported that after the earthquake, Fukushima Onahama Port and Soma had observed waves of 60 cm and 90 cm high respectively. The impact of this earthquake is the same as that of the 2011 earthquake and the tsunami it caused.
After the Fukushima earthquake, all nuclear power plants near the sea in Japan were shut down. Only two nuclear reactors in southwestern Japan continue to operate. Even when shut down, a nuclear power plant's cooling system still needs to run to keep used nuclear fuel cool.
After the news of the Japanese earthquake, the US dollar/yen fell sharply, hitting a daily low of 110.46, and then narrowed the decline; the US dollar/yen once rose 0.4% to 111.36 during the session, the highest level since May 30. The iShares MSCI Japan ETF fell 0.6% in after-hours trading.
As expectations for interest rate hikes by the Federal Reserve (FED) grow, U.S. bond yields continue to rise, and the Japanese yen has become the worst-performing G10 currency against the U.S. dollar this month.
Ueda Harlow Ltd. analyst Naoto Ono said: "If the impact of the earthquake is serious, the yen may continue to rise."
The earthquake was reminiscent of the 9.0 magnitude earthquake in March 2011. In the days after the earthquake that year, the Nikkei stock index collapsed by 16%; the yen surged by more than 7% against the US dollar.
In addition to the Japanese yen, U.S. Treasury bonds, which also have safe-haven properties, also rose. The 10-year Treasury bond futures rose and trading volume increased, with approximately 20,000 lots traded within 5 minutes after 4 p.m. Eastern Time; the 5-year/30-year Treasury bond yield difference steepened, exceeding 122 basis points, after previously touching 120.59 basis points. Intraday low.
Nikkei futures fell briefly in the U.S. market on Monday. During the regular trading session on Monday, the Nikkei 225 Index closed up 0.8% at 18,106.02 points, hitting its highest closing level since January 5 and rising for four consecutive days.
The U.S. dollar’s gains slowed down and short-term trends faced the test
On Monday, the U.S. dollar index closed slightly lower amid shocks. Since Trump was elected president of the United States, the dollar has climbed more than 3%, with investors betting that the Trump administration will adopt expansionary fiscal policies and prompt interest rates to rise faster. Most market participants expect the Federal Reserve to raise interest rates at its December 13-14 meeting.
With the arrival of the US Thanksgiving holiday this Thursday, Western traders' position closing operations before the holiday are likely to add to the uncertainty of the direction of the foreign exchange market.
Recently, there have been repeated reports from the market that the U.S. dollar is too large and too fast in the short term, and there may be a correction. The U.S. dollar has risen by nearly 5% in the past 10 days. And the latest CFTC data shows that speculators have reduced their net long positions in the U.S. dollar, which seems to provide a reason for a correction in the U.S. dollar.
According to data released by the U.S. Commodity Futures Trading Commission (CFTC) on Friday, currency market speculators reduced their net long positions in the U.S. dollar as they took profits after increasing their net long positions for seven consecutive weeks.This positioning adjustment is surprising because the dollar surged across the board during the week included in the statistics.
However, Shaun Osborne, chief currency strategist at Scotiabank , said the dollar's decline was nothing more than a correction, or at least a consolidation. He remains bullish on the U.S. dollar's medium-term prospects as interest rates rise and U.S. economic growth is expected to strengthen.
Daiwa Capital Markets analyst Kevin Lai believes that the rise in the U.S. dollar index is mainly due to the strength of the U.S. dollar against the euro, Japanese yen, Swedish krona and Swiss franc, which account for 79% of the U.S. dollar index. It also pointed out that from a technical point of view, these currencies still have a lot of downside against the US dollar. Therefore, there is still a lot of room for upside after the U.S. dollar index breaks through 100.
Some market participants pointed out that judging from the current trend of the US dollar, it hit a high of 101.48 last Friday, and the next strong resistance level is 101.80. If this point is exceeded, the upward momentum of the US dollar is bound to be further enhanced.
US President-elect Trump is currently building a new government team. The market believes that Trump's proposed policy measures, including infrastructure investment, will support the dollar's rise.
FXTM research analyst Lukman Otunuga said, “It is becoming increasingly clear that market participants have accepted the fact that Trump won. Most are waiting for the latest news from Trump’s economic team, which may be clearer. Revealing how he will lead the United States.”
The Fed’s second-ranking figure, Vice Chairman Fisher, made public remarks on Monday. On the one hand, he pointed out that the current economy has improved significantly, paving the way for an interest rate hike next month. On the other hand, Fisher also emphasized that interest rates will remain low for a long time and talked about the risks of a stronger US dollar.
Fisher pointed out that the current employment growth in the United States is strong, the economy is performing quite well, the economy is close to achieving the Federal Reserve's inflation and employment goals, and there are positive signals in the real estate market. The Fed will take inflation expectations into consideration, and higher interest rates highlight confidence in the future.
Fisher also said that the dollar has seen some appreciation. A rising dollar will not prevent us from taking the actions we should be taking on our domestic economy. Due to weak demand and weak global growth, the Fed makes decisions based on dual goals. Low equilibrium interest rates and sluggish productivity pose long-term challenges, and there is no sign that low interest rates are eroding the U.S. financial system.
Regarding the fiscal policy measures that the new U.S. government may take, Fisher said that adopting fiscal policies to improve productivity will prevent the Federal Reserve from supporting it alone. Some fiscal policies can promote growth. Macroeconomic policies are not necessarily limited to monetary policies, supporting government spending on infrastructure and education, and adopting more effective supervision.
