After last week’s major data dump, Uncle Sam will take a chill pill this week with only a couple of lower-tier reports. Will the tides change for the Greenback this week?
Lower-tier economic releases
After last week’s major data dump, Uncle Sam will take a chill pill this week with only a couple of lower-tier reports.
The ISM non-manufacturing PMI and final services PMI will be out in a few hours, though reaction might be muted given that we’ve already seen the NFP report come out. Ditto for the JOLTS job openings due tomorrow at 3:00 pm GMT.
We might get more volatility from the trade balance report scheduled tomorrow at 1:30 PM GMT. Market players are expecting Uncle Sam’s trade deficit to widen from $50.5B to $52.1B, but a wider deficit could fuel speculations that Trump would take a harder stance on trade negotiations.
Other central bank events
Janet Yellen and her gang have made their stance known last week, but this week we’ll hear from the RBA, RBNZ, and BOE as well as central bank heads such as Draghi.
Any one of them could influence overall currency price action or risk sentiment, so make sure you stick around during their scheduled events and speeches!
Last Week’s Price Review
The Greenback’s losing streak will potentially come to an end this week since the Greenback is currently the third best-performing currency (as of 6pm GMT). Although it’s worth noting that the Greenback is barely holding onto its gains against the pound.
Also worth noting is that if we remove AUD/USD and USD/JPY, we can see that the Greenback weakened against its peers for most of the week.
However, the Greenback’s strong start, together with the Greenback’s rise ahead of and immediately after the NFP report, allowed the Greenback to close the week on a higher note against most of its peers.
But what caused the Greenback to broadly rise on Monday? Well, aside from short-covering ahead of the FOMC statement, market analysts generally pointed to rising U.S. bond yields since the Greenback was supposedly taking cues from those.
And when the Greenback plunged on Tuesday, market analysts once again pointed to bond yields since they were easing at the time.
However, the bond yields explanation was later quietly swept under the rug because, as you can see in the chart below, bond yields continued to rise on Wednesday and Thursday but the Greenback continued to slide against most of its peers.
At this point, it’s worth pointing out that Yellen said her goodbyes as Fed Head and handed the baton to Powell during Wednesday’s FOMC statement. And Yellen was surprisingly upbeat on inflation when she said that:
“Inflation on a 12‑month basis is expected to move up this year and to stabilize around the Committee’s 2 percent objective over the medium term.”
The Fed’s official statement also helped to reinforce rate hike expectations since (emphasis mine):
“The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.”
However, the FOMC statement only caused the Greenback to toss and turn for a bit before trading sideways, only to resume its broad-based slide later.
And most market analysts only stated the obvious when they noted that the FOMC statement didn’t have a lot of sticking power. Although some market analysts tried to explain that the reason why the Fed wasn’t able to lift the Greenback was supposedly because further hikes in 2018 are already priced in.
In any case, the Greenback did find support later during Thursday’s late U.S. session before tilting to the upside by the Asian session. There were no direct catalysts, but short-covering and/or preemptive buying ahead of the NFP report likely drove the Greenback higher.
And when the NFP report was finally released, it was revealed that both wage growth and jobs growth were better-than-expected, and so the Greenback spurted higher as a knee-jerk reaction.