(09 NOVEMBER 2018)DAILY MARKET BRIEF 1: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.