Appetite to Sell the Dollar

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.

Japanese Yen

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

Australian Dollar

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?

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.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes