Trade war fears kept dollar bulls away, but risk-taking eventually kept it afloat by the end of the week. Will this week’s catalysts give it a more uniform price action?
U.S. CPI report (April 11, 12:30 pm GMT)
Consumer prices increased in the month of February but failed to meet market players’ expectations. And, unfortunately for the dollar, traders were all captivated by the White House drama around the time of the release.
This time around analysts see Uncle Sam’s CPI clocking in a 0.0% growth after February’s 0.2% uptick. Core CPI, on the other hand, is estimated to maintain the previous month’s 0.2% increase.
Be careful in trading this one, though! The Fed’s latest meeting minutes will be published five and a half hours after the CPI so unless we see significant hits or misses, it’s likely that traders will wait for the FOMC meeting minutes before trading the Greenback.
FOMC meeting minutes (April 11, 6:00 pm GMT)
While the FOMC did raise its rates as markets had expected in March, the members’ choice to stay on the three-rate-hike track for 2018 disappointed a lot of dollar bulls.
This week we might know more on why the Fed had upgraded its growth and employment forecasts and kept its inflation forecasts unchanged. If traders see that it won’t take much to convince members to be more hawkish than they were last month, then we might see the dollar gain pips across the board.
Trade war updates
As you can see below, the Greenback is highly sensitive to global trade updates when there are no top-tier reports on tap.
This week pay close attention to the standoff between China and the U.S. Specifically, watch out for their next steps after announcing their tariff plans.
If one of them decides to push the button and actually implement them, or if they find even more products to tax, then we’ll probably see the demand for dollar-denominated assets dip.
Last Week’s Price Review
The Greenback is mixed but a net winner (as of 5:00 pm GMT). However, the Greenback can still end up being a net loser since the trading day ain’t over yet and the Greenback’s win against the Aussie is only razor-thin.
The Greenback’s price action looks like a chaotic mess, huh? However, if we remove USD/JPY and USD/CAD, then we get the chart below. Magic! What can I say? I’ve just got mad skills when it comes to pattern recognition.
Anyhow, the Greenback was mixed but a net winner on Monday, thanks to a burst of Greenback-buying during Monday’s U.S. session. No clear reason for that, though, since the available catalysts at the time were negative.
In fact, the Greenback’s jump coincided with the release of ISM’s manufacturing PMI report, but that failed to meet expectations (59.3 vs. 60.1 expected, 60.8 previous). Although it’s possible that traders were more interested in the details of the report, particularly the prices sub-index, which jumped from 74.2 to 75.8.
In any case, the Greenback’s rally later stalled and the Greenback even began to weaken against most of its peers by Tuesday’s Asian session. And some market analysts blamed that on renewed trade war jitters over the U.S. and China, although no catalyst was cited.
The Greenback later found support during the morning London session and began moving back up again. But as noted in Tuesday’s morning London session recap, there wasn’t really any reason for the Greenback’s rise and market analysts were only stating the obvious when they pointed out that the buck just shrugged off the trade war fears.
The Greenback then steadied a bit but selling pressure was notable since Greenback pairs had a noticeable downward tilt by the time Wednesday’s Asian session rolled around. And this was likely due to renewed trade war fears since China was threatening to retaliate against Trump’s plans to slap tariffs on 1,300 Chinese goods.
And as it later turned out, China made good on those threats since China announced tariffs on 106 U.S. goods to tune of $50 billion. This caused the Greenback to toss and turn for a while before it became clear that the Greenback became vulnerable to opposing currency price action since USD pairs began to diverge.
USD pairs finally began moving uniformly again during Thursday’s Asian session. In fact, the Greenback was the best-performing currency of the Asian session. And market analysts said that this was due to speculation that a full-scale trade war will be averted, as well as preemptive positioning ahead of the NFP report.
The Greenback then steadily climbed higher against its peers for the rest of the day, although the Greenback did have a harder time against the mighty Loonie.
Unfortunately for Greenback bulls, the NFP report revealed that jobs growth slowed drastically in March. Wage growth did accelerate, but the reading was within expectations, so traders who opened preemptive positions on Thursday likely decided to take their profits and run.