USD Weaker on Geopolitics Ahead of US Inflation and Retail Sales

The US dollar is weaker across the board since Wednesday’s afternoon comments by US President Trump on the currency being “too strong” that prompted a selloff of the currency. Geopolitical risk has risen after the US confirmed the use of a huge non-nuclear bomb in Afghanistan. Risk aversion reversed some of the dollar loses as investors got ready for a long weekend in most major markets and expected lower liquidity on Friday and Monday.

The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) and the core CPI (removing the volatile energy and food components) on Friday, April 14 at 8:30 am EST (12:30 pm GMT). The forecast calls for the core data a 0.2 percent gain and for the full CPI to remain flat. At the same time the US Census Bureau will release the retail sales data. Core retail sales is expected to gain 0.2 percent while adding auto sales will result in a gain of 0.1 percent for the total value of retail sales in the US.

The US consumer continues to be confident about the economy as today’s Consumer sentiment shows by hitting a three month high but there has been little spending to go with that increase in confidence. The preliminary report from the University of Michigan also noted a gap between democrats and republicans in regard to their different levels of optimism. Economic indicators back up a stronger US economy but political risk at home and abroad have taken their toll on the dollar which could get a boost form strong sales and inflation data and vice versa could keep on the back foot if low inflation and weak spending get the Fed to reconsider their rate hike path.

The EUR/USD gained 0.142 percent in the last 24 hours. The single pair is trading at 1.0615 after the comments of the USD strength from US President Donald Trump put the greenback on the back foot. It is not usual for a US President to comment on the currency, a job often left to the Secretary of Treasury, but then again Trump is not a usual President. In a strange turn of events he also took the opportunity yesterday to mention that there is a possibility for Fed Chair Janet Yellen to extend her term. During his campaign he was critical of the central bank and its decision to leave rates low to benefit Democrats.

The market would welcome stability and a sign of central bank independence, but as Trump said it is still too early to say. April will be quiet in the central bank front as major central banks are not meeting this month.

The paradox between consumer confidence and spending will be in full display tomorrow as an optimistic University of Michigan confidence report released today, will be compared against retail sales. Retailers have been struggling and were the biggest losers in the last jobs report with a 30,000 loss in the sector. Department stores have been shrinking as shoppers opt to do more of their shopping online.

West Texas gained 0.607 in the last 24 hours. The price of WTI is trading at $53.01 after the US bomb attack in Afghanistan and the comments from the International Energy Agency who said the market is nearing balance. The Organization of the Petroleum Exporting Countries (OPEC) production cut agreement has put supply and demand closer to each other after falls in global stockpiles.

Rig counts in the US hit two year levels after shale producers continue their ramp up of production. US drillers have been the beneficiaries of the production cut deal lead by Saudi Arabia. The price stability that resulted from lower OPEC production combined with supply disruptions have made it attractive for US producers who are now expanding to other markets to take advantage of lower supply from OPEC members. This increase in production in North America will put downward pressure on oil prices even as the OPEC discusses an extension to the current six month deal.

Market events to watch this week:

Friday, April 14
8:30am USD CPI m/m
8:30am USD Core CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m

*All times EDT
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