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Dollar Doldrums Continue

A slow grind down for the USD generally. The move seems to match a similar drift down in US 10 yr yield, but correlation is not necessarily causation. Perhaps the general euphoria in equity and now Crypto markets has let some steam out of the dollar. Regardless the reason, without any significant news to spark a move, we are likely to see continued drift in a calm sea.


We get a much anticipated Bank of Canada rate decision tomorrow. There is an expectation that Macklem will ease off the quantitative easing program. This will be a very significant milestone. The BOC could be a trailblazer in finally turning monetary policy post covid. Given that Canada has seen a significantly rosier recovery, this makes a lot of sense. Don’t expect any rates movement on the front end, but Canadian 10 yr yield could catch a bid. It also should add some volatility to FX with many countries and regions in far different circumstances. USDCAD has been stuck on the 1.25 handle for a few weeks, it should be interesting to see how it responds to any perception of higher rates. Clearly, the BOC do not want to get too far out in front of other central banks. At the moment, USDCAD is showing some strength, but tomorrow will tell us a lot.


A slow grinding rally off the lows of the year continues. It would appear to be drifting, but if it keeps drifting in one direction, that’s a trend. The economic situation on the continent is no particularly bright, and there are some extreme geo-political risks right next door in Ukraine. All that said, EUR seems to shrug it off. The chart below shows how we could easily return to 1.2200 and test that yet again.


GBP has been strong the past few weeks in sympathy with the EUR. Today it did try to break 1.40 but fell back below 1.3950 by the end of the day. Not much to see here really. We do get a slew of inflation data which could potentially move the needle.


USDJPY has managed to give back nearly half of its gains for the year. What is most interesting is its divergence from US equities and reflation/risk on trade that would make one expect USDJPY to go much higher. The reversal is dramatic, but not necessarily concerning until it tests down or below 103. Should that happen, pay attention.

A few thoughts on Crypto

The buzz on crypto continues to grow in nearly every corner of the world. Crypto is now a focus of investment banks, hedge funds, central banks, to Robin Hood investors. There was even a large IPO last week. Coinbase was valued above $100 Billion for a brief moment after its IPO. Crypto is here to stay. While we do not see the uses as clearly as the optimistic masses, one cannot ignore it out of hand any longer.

The term Crypto “Currency” is a misnomer

Crypto asset or Crypto commodity seems much more suitable. Bitcoin “mining”, for example, looks eerily similar to commodity mining. Bitcoins are awarded for solving the next level of the blockchain and keeping a copy of the ledger. If you find this confusing, don’t worry, it is meant to be. The key takeaway is that this mining process requires resources. Those resources consist of processing power and, critically, power. That’s why mining occurs in locations near hydro-electric power generation plants. The unfortunate by-product of this situation is that bitcoin mining is in direct competition with you the consumer to procure scarce electricity resources. By extension, when bitcoin values go higher, the miners are willing to pay more to use this electricity, which drives up costs for the end user: you.

I will spare you the textbook definitions of a currency and simply say that if a reasonable person would not consider allowing all of their assets to reside in a crypto currency, then it ‘s not a currency. That is not to say that it is something bad, it is simply to say that it is an asset and its value is derived by the simple forces of supply and demand.

Why digital currencies are important and why you should pay attention

Governments across the world are responding to digital assets in wildly different ways. Some countries, such as Turkey and India have either banned it as a medium of exchange or are signaling plans to do so. Others, namely China, are working to develop digital versions of their own currency, think e-CNY. While the regulation or elimination of bitcoin should scare you, the adoption of digital currencies by governments could potentially be much scarier. Tracking the location of money and controlling its use with the push of a button could give central banks and governments complete control of spending and the velocity of money. Free markets could vanish overnight through manipulation.

Given this backdrop, while we don’t offer Crypto at the moment, we will add crypto commentary from this point forward. As always we welcome comments and questions.

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