If something can't rally on good news...

Heavy US dollar selling underway

When something can't rally on good news, it probably can't rally at all.

The US dollar got about the best outcome it could yesterday from the FOMC and Powell. The dots moved up, Powell signaled a taper and even added a little bonus by saying it would wrap up around the middle of next year (with the usual caveats).

That led to some initial dollar buying but it has faded fast.

I warned about this yesterday, writing:

If something can't move on hawkish news, it's not going in that direction.

It was similar for stocks, which couldn't fall despite the hawkish talk.

I continue to argue that better sentiment on China is the real driver here. The taper was priced in and even today's WSJ story with the negative headline on Evergrande had details that were much more constructive for the economy and housing overall:

Policy makers are also considering gradually easing some property curbs in smaller Chinese cities, such as making ownership of a second home easier, according to one of the people. They could also moderate some of the stringent deleveraging measures on property developers that helped push heavily indebted Evergrande toward the precipice in recent months, this person said.

There's an absolute ripper of a risk trade going right now and you can't tie it back to the Fed. It's all about China and the rush into EM, commodity currencies and sterling is weighing heavily on the dollar and yen.
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September 24, 2021 at 02:37AM

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