Appetite to Sell the Dollar
There remains real appetite to sell the USD even after the brash dollar sell off post-FOMC as it’s becoming evident to all the Greenback has problems, and the can of worms is barely open.
The Dovish FOMC combined with the US political imbroglio saw little appetite for dollars heading into weeks end. But complicating the narrative this week will be month end flow, Eurozone CPI, GDP and US payrolls this week. However, on Tuesday the key US Price Consumption Expenditures index or PCE figures are released which could provide more transparency into the inflation as transitory narrative.
Inflation concerns remain in the FED spotlight, and with the market split on whether the FOMC may or may not raise interest rates again in 2017, any and all inflation metrics will be in focus. But given the PCE is Fed’s preferred inflation gauge, the print could be this week’s primary focal point.
Emerging from the Fed blackout traders turn to speeches by the Loretta Mester and John Williams, both scheduled for Thursday night.And while they’re expected to toe the plank it’s possible they may offer some fresh insight regarding the central bank’s balance sheet “ relative soon” timeline
It’s a huge week on the data front, but for USD bulls there’s an unpalatable reality that with ECB members sounding increasingly hawkish and their FOMC counterparts ever so dovish anything to confirm this bias will be pounced on by traders.
With that in mind, it’s a busy week on the EU economic diary, so a higher than expected Eurozone CPI on Monday and a strong follow up Eurozone GDP on Tuesday could see the single currency push above 1.1800 as the greenback struggles to find buyers on the dovish Fed narrative.
The current Euro strength is as much about broad USD weakness and with the plausibility that positioning is still not stretched, it not only suggests investors buying dips will cushion the downside but that the pair could accelerate much higher on sturdy EU economic data prints.
JPY had been enjoying a quiet Friday until the Japanese government reported that North Korea has test fired another missile. Yen immediately picked up the haven appeal and fell through 110.75 support on its way to 110.50
The geopolitical overhang will likely keep top side moves in check early in the week as the disorganised US and China policy towards North Korea is not helping matters
The Aussie moves have been nothing short of incredible, but we should be in for well overdue consolidation phase.But the AUDUSD at 80 cents is looking very expensive especially in the wake of Governor Lowe’s speech which cut short any domestic rate hike expectation. However, the real play here is the weak USD and more specifically the dovish Fed which has encouraged the carry trade as speculators continue to pile in.
Little change expected on tomorrow’s RBA decision given the recent guidance from both Debelle and Lowe. However, the domestic retail sales on Friday should be interesting as given the high level of household indebtedness, which begs the question are retail still spending?