FOMC updates, risk sentiment, and geopolitical concerns wreaked havoc on the dollar’s price action last week. Will this week’s catalysts provide a clearer picture?
Retail sales (April 16, 12:30 pm GMT)
In a few hours Uncle Sam will print its retail sales for the month of March. The Greenback got knocked down in last month’s event, likely because the headline retail sales missed its estimates. It wasn’t all gloom and doom, however, as January’s figures were also revised higher.
This time around analysts are seeing a 0.4% pickup in headline retail sales (from -0.1% in February) while the core reading is expected to maintain its 0.2% growth for the month.
FOMC member speeches
The FOMC has shared its two cents in its statement last week, but it seems like the members will get to have another turn in the mic in their speeches over the next couple of days:
Raphael Bostic (5:15 pm GMT)
John Williams (1:15 pm GMT)
Randal Quarles (2:00 pm GMT)
Raphael Bostic (9:40 pm GMT)
William Dudley (7:15 pm GMT)
Randal Quarles (8:15 pm GMT)
Lael Brainard (12:00 pm GMT)
Randal Quarles (1:30 pm GMT)
Loretta Mester (10:45 pm GMT)
Take note that ALL of them are voting members, so make sure you pay attention to what they have to say!
Geopolitical/Trade War Updates
As you can see below, trade tensions with China and geopolitical risks in Syria are capable of affecting the dollar’s intraweek price action.
Will the U.S. continue to wield its “big stick of trade sanctions” against China and still refuse to come to the bargaining table? Or will Trump take cues from Xi Jinping and throw out plans for easier trade policies against Uncle Sam’s major trading counterparts?
Meanwhile, it doesn’t look like Russia is in any mood to retaliate over last weekend’s missile strikes in Syria. Unless Trump (and allies) hint of another attack, then we might see more geopolitical-related trades unwind over the next couple of days.
Last Week’s Price Review
The Greenback is currently the third-worst performing currency of the week (as of 5:00 pm GMT).
The Greenback’s overall price action looks rather messy at first glance. However, we get a clearer picture if we simply remove USD/JPY and USD/CHF from the overlay of USD pairs.
As you can see, Greenback pairs were pushed below last week’s closing prices (dashed horizontal line) on Monday and then proceeded to tank on most pairs until Wednesday, before becoming more mixed for the rest of the week.
It only became obvious in hindsight, but the Greenback’s slide actually started during Monday’s morning London session. But what happened back then? Who or what is the culprit for the Greenback’s broad-based slide, you ask?
Well, it was apparently a tweet from this guy:
When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE – going on for years!
— Donald J. Trump (@realDonaldTrump) April 9, 2018
“Recently, the financial and economic officials from the Chinese and US sides have not conducted any negotiation on trade issues. Under the current circumstances, it is even more impossible for the two sides to do so. This trade conflict was initiated by the US alone and it is entirely the one to blame. The US is wielding the big stick of trade sanctions while keeping saying they are willing to talk. I am not sure who the US is putting on such acts for.
Anyhow, the war of words apparently revived trade war fears, which sapped demand for the Greenback.
After that, the Greenback’s suffering was sustained on Tuesday, apparently because of Xi Jinping’s speech.
As noted in Tuesday’s Asian session recap, Xi Jinping talked about further opening up China’s economy. And one such plan is to “significantly” lower import tariffs for products including autos, increasing imports, lowering foreign-ownership limits on manufacturing, and expanding protection to intellectual property.
Xi Jinping’s speech was viewed as positive overall and helped to ease trade war fears, market analysts say.
Instead of finding buyers, however, the Greenback ended up getting sold off on most pairs instead. And according to market analysts, the Greenback’s negative reaction to the speech was due to the risk-on vibes since that ramped up demand for higher-yielding currencies at the expense of the U.S. dollar.
That kinda makes sense since the Greenback continued to claw its way higher against the safe-haven yen while trading roughly sideways against the Swissy, which is another safe-haven currency.
As a side note, the euro’s not really part of the higher-yielding club, but as noted in the weekly recap for the euro, Nowotny’s hawkish comments were giving the euro a boost at the time.
Moving on, the Greenback’s price action became a bit more mixed when Wednesday’s Asian session rolled around.
However, sellers later tried to push the Greenback broadly lower again when the latest U.S. CPI report failed to impress. Also, fears of a possible conflict between Russia and the U.S. over Syria were supposedly weighing down on the Greenback at the time.
Fortunately for Greenback bulls, the minutes of the recent FOMC meeting were released and they were positive overall. As for details, you can check out Forex Gump’s 4 Highlights From The March FOMC Minutes.
Anyhow, the FOMC minutes appear to have been the catalyst that finally stopped the Greenback’s broad-based slide. There wasn’t really much in terms of follow-through buying, though, and the Greenback’s price action then became more mixed after that.