Long USD short, short USD long

Whither the dollar? Dips are recurring in EUR/USD: these are opportunities to reload long positions. Trader are unlikely to hold risky trades over this weekend, although we anticipate a strong USD close today. Positive sentiment from midterm elections has worn-off. USD is overvalued, yet it derives strength from a white-hot domestic economy and safe haven status. Short sellers are fearful to get in front of the dollar train, as expectations of a late cycle decline have not happened, labour markets continue to tighten, and the Federal Reserve keeps secret its peak interest rate.

The USD/JPY rally should stall after reaching 114.09 high. Zero expectations of a Bank of Japan tightening have created the near perfect funding currency. However, the BoJ says it will manage yield curves in a “flexible manner” allowing for “factors as the range of yield movements”. The wording suggests the central bank might accept greater volatility.

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Chinese inflation stable in October despite risk of acceleration

USD/CNY is trading at 6.9475, bouncing back due to resurgent optimism that the China-US trade war might be resolved in late November and on stable Chinese inflation rates. October inflation came in 2.50% (prior: 2.50%): the outlook of a weaker Renminbi will necessarily cause imports to be costlier, which will ultimately accelerate inflation starting in 2019. Hopes are high that US President Donald Trump and Chinese President Xi Jinping can be meet during the G20 meeting in Argentina over 30 November-1 December 2018. Meanwhile, Chinese equities have had a tough week. Following the announcement of lower economic growth in Q3, 6.50% – the lowest since 2009 – the Chinese market has been losing ground. Asian shares are having their sixth slide in seven weeks, thus erasing last week gains.

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