King USD rules again

The US dollar once again seems to the place to be, with the dollar index printing a bullish key day reversal.

US data was positive with factory orders growing 2.1%, slightly above consensus, although the moves in bond yields were minimal with the US ten-year treasury holding firm at 2.46%. The Federal Reserve have also announced new US bank capital requirements, similar to Basel III, which will include raising the minimum ratio of common equity tier one capital to risk-weighted assets of 4.5%, while there are other capital ratios that are in focus. The idea obviously is to strengthen the banking system, which should be seen as positive longer term and ultimately would be USD positive.

Macro and other leveraged funds have looked at USD/JPY with renewed vigour of late and the pair hit a high of 100.86. EUR/USD and AUD/USD also headed south with the lows of 1.2964 and 0.9131 seen.

New York Fed President Bill Dudley was speaking in US trade, and while he has been dovish for some time, his forward-looking comments seemed actually quite upbeat suggesting ‘a strong case can be made that the pace of growth will pick up notably in 2014’. Comments from Mario Draghi were generally dovish, with the ECB President saying that the euro crisis has hurt the EUR’s global role and there seems to be a growing view that he will stick to this dovish stance in this Thursday’s ECB meeting.

We continue to feel selling rallies in EUR/USDAUD/USD and GBP/USD makes sense, while USD/JPY should find buyers on pullbacks to 100.00. We also believe momentum-focused traders could look to buy USD/JPY on a closing break of 101.30 (the top of the daily ichimoku cloud), especially with the ADP private sector payrolls in focus, ahead of Fridays all-important US payrolls report. At 12:45pm (AEST) today we also hear from RBA governor Glenn Stevens who could throw some light on the recent AUD moves.

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