Who ordered strong dollar?

The oil market keeps watching a meeting of OPEC in Doha, but chances for agreement on reducing production thaw every day.

All trends began last week in force so far. FRS does not matter presidential elections, Merkel goes on the fourth term, the EU accepted the budget-2017, the Bank of Japan in silent panic. The dollar grows meanwhile and it is still difficult to understand who stands to the most profit from it.

They say that the expensive dollar isn't profitable for the USA and its strengthening can undermine Trump's plans to return production to the USA. The dollar growing on euphoria doesn't give to export any freedom of maneuver. The current market believes that in spite of all odiousness of the new president his actions will be in line with last policy of the USA. Especially as Trump's ideas will be not necessarily accepted by republicans in the Congress. But before Trump`s assumption of the presidency position in particularly the economic program declared by him will be a basic reason of strengthening of positions of the American currency that already proves to be true by growth on American stock market in general, and by demand for metals in particular.

Who about what, and Yellen again about the mandate. The speech of the head of the Federal Reserve before the Joint Economic Committee of the US Congress didn't affect a speculative deal, Yellen didn't tell anything new, except reminders that support of the labor market and response to inflation change is the main goal. Questions of independence of the Central Bank from the policy of the new president weren't discussed and the phrase «closest future» for rates is understood as a meeting of FRS on November 13-14.

It was obviously told in comments, that the economy is rather strong for toughening of monetary policy. The positive statistics on consumer inflation and continuation of growth of profitability of state bonds of the USA against the background of their sales became additional factors for benefit of dollar. Investors began sharply to leave the American Treasuries, selling bonds and buying dollars that also stimulated deficit of dollars in the market.

Since Saudi Arabia called members of OPEC to prepare for reducing amounts of oil extraction, Iran increased it by 0,185 million barrels a day on three oil fields in the west of the country. In April Iran could achieve more advantageous conditions, but already the country practically reached production levels before entering of the international sanctions.

The oil market keeps watching a meeting of OPEC in Doha, but chances for agreement on reducing production thaw every day. Iran and Iraq didn't visit these negotiations, and Libya and Nigeria still didn't recover after decrease in production and apply for indulgences too. If the OPEC countries won't agree, oil waits for the new decrease in quotations (WTI at the level of $40 for the barrel).

Euro searching for the next bottom. The market already for 45% pledged in quotations pairs EUR/USD probability of achievement of parity. Draghi continues to advertize threats concerning extension of the ECB stimulation program. The one positive of the eurozone can be information that the problem Italian bank Monte Paschi conducts negotiations with Asian investors for the attraction of the equity, the Singapore Temasek will serve as the anchor investor.

Provisional estimates confirm the cost level on Brexit in ₤100 billion. The government expects reducing tax revenues because of delay of growth rates of the economy and the volumes of investment. The business also goes to minus. So, the British companies already cut off investment programs for 65,5 billion pounds this year.

The vast majority of residents of Great Britain want to remain in the single market of the EU, but at the same time to reserve the right to control the immigration. In reply, the European commission also intends to take measures concerning British - discuss a possibility of entering of a payment for entry into EU countries for the British tourists. Against the background of lack of single strategy for a country exit from the EU, similar obstinacy complicates the negotiations.

Development of the legislation for Brexit's start can take up to two years, meanwhile, the government prepared the bill consisting of 3 points which shall become an argument against attempts to impose additional (slowing down) conditions for an exit from the EU. It confirms the opinion that Great Britain can pay to the budget of the EU at least 10 more years.

Next week the Treasury of Great Britain will publish the so-called Autumn Statement - one of two documents provided to parliament annually, containing economic estimations. The report, apparently, will contain nothing good: as expected, the amount of the central government budget deficit expected in the next five years will be raised to ₤100 billion. Besides, this year Treasury has to find ₤15 billion more, considering delays in the sales of the RBS and Lloyds shares belonging to the state.

From other events It should be noted:

  1. Profitability of the Japanese government papers gives disturbing signals that BOJ lost control over them. Kuroda expressed readiness in case of need to buy unrestricted amounts on transactions with a fixed rate. This buying up is a government guarantee «to take away» all short-term bonds offered for sale whose profitability exceeds the limit set by the Bank of Japan until the offer doesn't come to naught. As Abe and Trump perorated benevolences, and dollar/yen, meanwhile, left higher than 110.00. Prime minister Abe declared the creation of the regional trade union including China if Trans-Pacific Partnership sputters out after Trump`s assumption of the presidency.
  2. The tramp took compromise tone in an interview with CBS, having declared that he is ready to leave a part of the Medicare program and the right to same-sex marriages, but confirmed plans to expel illegal migrants. The first personnel appointments didn't influence the financial market yet, but James Dimon from JP Morgan bank refused the post of the U.S. Treasury Secretary offered by Trump. He is afraid or knows something?...
  3. India struck a blow to the gold market and the real estate, having withdrawn large banknotes from circulation. Those who still have them shall come to the bank and to put them into the account, or to exchange for notes of another nominal till December 30. Now investors have to store the savings in other financial products. Similar demonetization shall lead to a decrease in demand for gold due to the reduction of the cash received in envelopes which generally is used for the purchase of jewelry.
  4. In the current situation of a speech of representatives of FRS, the European Central Bank and other the markets don't interest. The dollar is more inclined to move on statements of congressmen of the USA and Trump's advisers now. On capital assets medium-term correction is necessary. On Wednesday it is worth paying attention to the Protocol of FRS, but considering that on Thursday in the USA Thanksgiving Day, strong reaction to publications isn't expected, fixing of profit before long days off will take place on closing of London. On the Eurozone it is necessary to trace PMI of the countries of the Eurozone, IFO, GDP of Germany and Great Britain.

EUR/USD: key level 1.0500, at the moment - support. Urgent range (1.0617/1.0455). Zone of resistance 1.0650 - 1.0720 - 1.7790. Taking into account lack of fundamental factors on a turn it is impossible to exclude retest the lower bound of the ascending channel in a zone 1.0460 - 1.0420.

GBP/USD: intraday supports (1.2317/1.2300) - (1.2254/1.2251) - (1.2210/1.2140) (strong) - (1.2075/1.1878) (protection); resistance 1.2370 - 1.2442 - 1.2480 (very strong). The movement in the range of 1.2450 - 1.2330 is urgent.

Author: Alexander Ward,
ForexChief Currency strategist