Week In FX Americas – A Tough Few Sessions Being A Dollar Bull

For many dollar bulls their timing has sucked. This week saw many of those bull position bleed that bit more, so much so, that countless of investors decided to pare back their open exposure or in fact close their ‘long’ dollar positions altogether, at least until things become more clearer.

Dollar bulls expecting to score on the back of diverging rates between a hawkish Federal Reserve and dovish European Central Bank (ECB) are the ones that mostly got smacked about. With the release of the dovish FOMC March meeting minutes, and Fed Chair Janet Yellen’s recent remarks highlighting “considerable slack” in the economy had many long-dollar positions seeing red as the market drastically priced out an early rate hike by the Fed.

Rubbing salt into the wounds of the dollar bull that happened to exit their long positions, was the news on Friday that March’s higher than expected PPI print (+0.5%) gave the dollar a boost against many of the G7 currencies. The inflation print incited hopes that the Fed would curb its stimulus efforts sooner rather later (discarding the dovish rhetoric slack comments from Yellen). The FOMC minutes this week said it would need to see higher inflation alongside an increase in employment before the Fed would consider higher interest rates. Producer prices like this indicate that US inflation pressures are building.

Perhaps it’s an added incentive for the Fed to raise rates faster than originally thought or perhaps speed up the pace of tapering. Higher rates favor a stronger dollar.

WEEK AHEAD

* USD Advance Retail Sales * GBP Core Consumer Price Index * EUR German ZEW Survey
* USD Consumer Price Index * NZD Consumer Prices Index * CNY GDP YTD * EUR Euro-Zone Consumer Price Index * CAD Bank of Canada Rate Decision * CAD Consumer Price Index

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell