Despite OECD leading interest rate, the dollar can’t get any respect. Nowhere is this more evident than in the USDJPY which continues to make yearly lows just as the interest differential is hitting decade-long highs. Part of the problem is the wave of risk aversion that has swept the market as fears of a trade war hang heavily over the buck.

Today, however, the market may have received some good news. US Congress is likely to pass the omnibus funding bill removing the specter of a budget standoff in DC. With government functioning smoothly, attention will turn back to trade, but even here the fears may have been overblown. Although the Trump administration threatened the world with tariffs on steel and aluminum it appears that most of our trading partners will get waivers.

In the meantime, the war with China looks to be highly tactical as well. Although the scope of proposed tariffs is vast at $50 Billion, it not yet clear just how much damage they will do to Chinese producers and China — which always plays the long game — may choose to complain, but do little in response, as their desire for trade my trump political considerations. If the Chinese do indeed hold back their gunpowder, the market may see a massive relief rally and USDJPY which has been able to hold 105.00 support despite all the hand-wringing by traders, could quickly verticalize to 108.00 as shorts run for cover.

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