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FXS: Dollar Remains on Back Foot After ADP and FOMC
 
The US dollar remains on its back foot despite the stronger than expected ADP job estimate and the FOMC that said nothing to dissuade investors that it will be gradually raising rates this year.

Japanese equities tumbled more than 1% while the 10-year JGB yield rose above 10 bp without eliciting a response from the BOJ. The dollar failed to push above JPY114 yesterday and has been pushed back to JPY112.50 . Although it has initially seemed that Japan was not in the US Administration's cross-hairs, but recent comments suggest it too is subject to the same kind of jawboning as Germany and China.

The euro is confined to an exceptionally narrow range around $1.08 and is inside yesterday's range which is inside Tuesday's range. The $1.08 area houses the 100-day moving average and the 50% retracement of the euro's slide since the US election (~$1.0820).

Sterling remains well bid and is at its best level since the US election near $1.27. The UK parliament easily voted to give Prime Minister May authority to trigger Article 50 to begin its divorce from the EU. She is expected to do so in the first half of next month. The focus today is on the BOE meeting and the Quarterly Inflation Report. Carney has been sounding more optimistic on the economy and this may see the economic forecasts tweaked a bit. The combination of the drop in sterling and easier monetary policy may have helped the economy weather the potential disruption. The asset purchase program is nearing completion and is not expected to be renewed. Sterling's highs from December offer the next technical targets. These are found near $1.2720 and $1.2725.

The Australian dollar is leading the move against the US dollar today, extending its rally another 1% today. The fundamental impetus came from a record trade surplus in December and an upward revision to the November series. The December trade surplus was A$3.5 bln and the November surplus was revised to A$2.04 from A$1.24. Rising commodity exports especially coal (14%) and iron ore (10%) bolstered the trade figures. Natural gas exports are also increasing. Exports overall were up 5% in value terms. The favorable terms of trade are expected to carry into at least the start of this year. The Aussie is approaching $0.7700, which had been an important ceiling in the last few months of 2016. Although it had traded above the ceiling, it rarely closed above it and ultimately failed to establish a foothold.

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