Bruised dollar not finding support

15 January, 2018

Many traders have been caught by surprise by the extent of the dollar’s decline over the last week. The USD index fell below 91 for the first time since January 2015, and Friday’s 0.96% drop was the second biggest since January 2017. More surprisingly, the U.S. data released over the last week certainly doesn’t justify a dollar selloff. U.S. core consumer prices recorded their largest increase in 11 months in December, rising 0.3%. Retail sales for December rose 0.4%, whereas core retail sales increased 0.3% after an upwardly revised 1.4% surge in November. The two tier-one economic reports sent expectations for an interest rate hike in March to above 72% from just a 50% chance last month.  This clearly suggests that internal data did not inspire the dollar selloff, but rather, external developments played a role.

Given that the Euro holds the most weight in the dollar’s index, constituting about 57% of the weight, the single currency movement, spurred by political and monetary policy developments, is dictating the DXY’s direction. On the political side, the coalition deal between Angela Merkel and social democrats was a great relief, after nearly four months into Germany’s general election. More importantly, the shift in ECB’s language is a new development sparked by hints that the Governing Council agreed to review its policy language early this year. However, the hawkish comments recorded in the December minutes, were made before the release of the Eurozone inflation which slipped further away from the Central Bank’s target ending the year at 1.4%. The ECB will meet in 10 days, and unless Mario Draghi finds a way to convince markets that the unwinding of stimulus will be very slow, I think the Euro will be marching towards 1.25 by end of Q1.

The Pound’s performance was also outstanding after GBPUSD managed to break above the 1.3656 resistance level. Reports released on Friday that the Spanish and Dutch are willing to reach a soft Brexit deal helped to fuel the rally. The U.K. parliament will be meeting on Tuesday and Wednesday for another debate over Brexit, so a close eye should be kept on new developments. 

This week, inflation figures once again will be under the spotlight in the UK and Eurozone. I think if we get any surprise on Tuesday, it will be to the downside, so, the rally in both currencies may pause.

Bank of Canada will also be under the investor’s radar as the central bank is expected to hike rates by 0.25% on Wednesday. This comes despite lot of uncertainty towards the Nafta talks.

Source link  
Pound weeps as political clouds gather

Today was a sad day for the British Pound which depreciated against every single G10 currency. The toxic mixture of political drama in Westminster and...

Gold fails to recover above $1280

The past few days have certainly not been kind to Gold and this continues to be reflected in the bearish price action. Conflicting signals over...

Risk sentiment takes advantage

Traders are taking advantage of a lull in news flow stemming from US-China trade tensions to send Asian stocks higher, after the S&P 500 posted...

Market sentiment influenced

Investor sentiment has swung back and forth this week due to the persistent uncertainty and ever-changing jigsaw puzzle that is being mapped...

Sterling crumbles on Brexit uncertainty

The British Pound extended losses against the Dollar on Wednesday amid speculation over Prime Minister Theresa May's Brexit deal crashing...

Dollar flickers to life. Gold takes a breather

Dollar bulls made an unexpected appearance on Tuesday afternoon despite the mood across financial markets improving on revived trade optimism...

Markets on tenterhooks

US-China trade tensions are expected to continue being the dominant theme this week, as Asian markets kicked off Monday in risk-off fashion...

Truce of tariffs - what will happen?

The coming hours will be absolutely crucial for markets. The paramount question of the day is whether the US and China can strike a trade deal...

Keep watch on Lira and Rand

Smoke continues to linger across market sentiment following the smoke grenade President Trump launched over the weekend with the threat of adding further tariffs on Chinese imports at the end of the week.


Share it on:   or