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The Greenback has been on a topsy-turvy ride and we’re only just beginning the year. What’s in store for the dollar this week?

PPI, CPI, and retail sales reports

On Jan 11 at 1:30 PM GMT analysts are expecting to see a 0.2% producer price growth for the month of December after seeing 0.4% uptick in November. Even core prices are expected to improve by 0.2% after showing 0.3% increase in the previous month.

Then, on Friday at 1:30 PM GMT we’ll see a double feature of Uncle Sam’s CPI and retail sales reports. Headline inflation is expected to have grown by 0.2% in December after November’s 0.4% uptick, while core prices are also expected to show 0.2% growth on top of the previous month’s 0.1% increase.

Rounding up this week’s weaker-than-previous-readings reports is the retail sales release, which is only expected to grow by 0.5% from November’s 0.8% improvement. Even core retail sales, which excludes automobile purchases, is only expected to show 0.4% increase after November’s 1.0% growth.

FOMC VOTING member speeches

Last week the FOMC meeting minutes release saved the dollar from its intraweek losses. See, Yellen and her gang weren’t as dovish as expected since “a few participants” are considering a faster pace of tightening throughout 2018 than implied by their official December statement.

They were also pretty excited about Trump’s fiscal stimulus plan, saying that it could lead to “a steeper path of increases in the target range.” And no, they weren’t talking about golf.

This week we’ll hear from Fed members Raphael Bostic (Jan 8, 5:40 PM GMT), John Williams (Jan 8, 6:35 PM GMT), and William Dudley (Jan 11, 8:30 PM GMT). All three are voting members in 2018, so y’all better watch their speeches closely!

Last week’s price review

The Greenback is the third worst-performing currency of the week, which is a poor start for the new trading year.

Overlay of USD Pairs: 1-Hour Forex Chart
Overlay of USD Pairs: 1-Hour Forex Chart

The overlay of Greenback pairs above already excludes USD/CAD because that one was clearly an outlier.

Having said that, the Greenback showed weakness from the get-go. There weren’t really any catalysts, so market analysts said that the Greenback’s weakness was just a continuation of 2017’s Greenback bashing amid low expectations that the Fed can deliver on three projected rate hikes this year.

The Greenback’s price action then became a choatic mess before encountering bullish pressure when ISM’s U.S. manufacturing PMI reading exceeded expectations (59.7 vs. 58.1 expected, 58.2 previous).

The Greenback then got another bullish boost when the minutes of the FOMC’s December meeting were released since the contents were deemed as being less-dovish-than expected.

Sure, “several participants observed that survey-based measures of inflation expectations or market-based measures of inflation compensation remained low, or that other persistent factors may be holding down inflation.”

However, Fed officials remained upbeat about their growth outlook and “a majority commented that they continued to expect inflation to gradually return to the Committee’s 2 percent longer-run objective.”

Also the market was surprised to know that (emphasis mine):

“A few other participants mentioned that they saw as appropriate a pace of additional policy tightening through the end of 2018 that was somewhat faster than that implied by the December SEP median forecast. They noted that financial conditions had not materially tightened since the removal of monetary policy accommodation began, that continued low interest rates risked financial instability in the future, or that the labor market was increasingly tight.”

We also got positive hawkish commentary on Trump’s fiscal stimulus plan, such as this one (emphasis mine):

“Participants discussed several risks that, if realized, could necessitate a steeper path of increases in the target range; these risks included the possibility that inflation pressures could build unduly if output expanded well beyond its maximum sustainable level, perhaps owing to fiscal stimulus or accommodative financial market conditions.”

Anyhow, the Greenback kept climbing after that before finally hitting a ceiling when Thursday’s Asian session rolled around. And this was the beginning of the end for the Greenback (except on USD/JPY).

As to what caused the Greenback to return its gains (and more), there weren’t any, so market analysts said that the Greenback’s slide was a continuation of 2017’s Greenback weakness.

The Greenback’s slide did decelerate later when the December ADP report impressed (250K vs. 191K expected, 185K previous). In fact, the Greenback even began to show signs of recovery on most pairs later on, likely because the ADP report stoked expectations for a strong NFP report.

Unfortunately, non-farm payrolls only increased by 148K, which is a significant miss from the expected 190K increase, which is why the Greenback tried to move lower as a knee-jerk reaction.

But as Forex Gump pointed out in his Event Preview for the NFP Report, “follow-through selling is usually (but not always) only limited if jobs growth is still above 100K, which is the minimum number of jobs needed per month to keep up with working-age population growth, as well as sustain rate hike expectations.

And since average hourly earnings increased by 0.3% as expected, bulls quickly jumped in and the Greenback went nowhere before tilting slightly lower later.