Uncle Sam isn’t scheduled to print any top-tier report this week, so the Greenback will likely take cues from overall risk sentiment as well as trade and geopolitical updates.
Trade comes at the top of the list, especially since the government has just given the go signal to increase steel and aluminum tariffs on goods from Canada, Mexico, and the EU. TBD on exactly how Uncle Sam’s trading partners will retaliate.
Meanwhile, China has threatened that “If the U.S. introduces trade sanctions including raising tariffs, all the economic and trade achievements negotiated by the two parties will be void.” Duhn duhn duhn.
For interest rate junkies out there, keep an eye on the rate hike rhetoric and how helpful last Friday’s NFP report is to fanning speculations of a fourth rate hike by the Fed.
Last but not the least, keep an eye on catalysts from other major economies (*cough* Italy and Spain governments *cough*) in case they influence overall risk sentiment and demand for low-yielding currencies like the dollar.
Last Week’s Price Review
The Greenback is the second worst-performing currency of the week (as of 5:00 pm GMT).
The Greenback’s price action looks a bit messy at first glance. It does get much better if we simply remove USD/JPY from the overlay since that’s an outlier.
With USD/JPY out of the way, we can see that the Greenback’s price action had three distinct phases: (1) the early rise, (2) the collapse, and (3) the recovery attempt.
The Greenback had mixed start but it’s clear that buyers had the upper hand on Monday and Tuesday. There weren’t really any direct catalysts for the Greenback’s rise, but some market analysts say that the Greenback was likely supported by safe-haven demand because of the political troubles in Italy and Spain at the time.
That explanation does seem plausible since the Greenback only lost out to the yen and the safe-haven Swissy was also able to fight back against the Greenback’s strength on Tuesday after ANSA broke the news that Italian President Mattarella was being pressured to call for fresh elections by July.
Moving on, the Greenback’s rise eventually stalled and the Greenback began getting hit by selling pressure on Wednesday.
Some market analysts attributed this to the euro’s recovery and recovering risk sentiment, thanks to positive political developments in Spain and Italy. Basically, traders who bought up the Greenback (at the euro’s expense) because of the political uncertainty in Spain and Italy were unwinding their positions and were likely buying up the euro (at the Greenback’s expense).
That also makes sense since the Greenback lost out to everything except the safe-haven yen. Although the Greenback did eventually take a step back even against the yen. And as noted in Wednesday’s U.S. session recap, that may have been due to mostly downbeat mid-tier U.S. economic data.
After that drop, the Greenback began clawing its way higher, which is kinda strange since trade war fears ramped up at the time, given that U.S. Commerce Secretary Wilbur Ross announced that the U.S. will push through with its planned tariffs on aluminum and steel imported from the E.U., Canada, and Mexico, which then prompted Canada and Mexico to announce retaliatory tariffs against the U.S.
It’s possible, however, that the Greenback began to recover because of short covering and/or preemptive positioning ahead of the NFP report.
Speaking of the NFP report, that was better-than-expected, with jobs growth and wage growth both exceeding expectations and the jobless rate falling to its lowest level since April 2000 to boot, which caused the Greenback to jump higher as an initial reaction.
However, the Greenback already jumped higher about an hour before the NFP report was released because Trump tweeted the following:
Looking forward to seeing the employment numbers at 8:30 this morning.
— Donald J. Trump (@realDonaldTrump) June 1, 2018
Despite the very good jobs report, there was only limited follow-through buying and the Greenback began to take a step back against most of its peers, which supports the idea that the Greenback’s recovery may have been due to short covering and/or preemptive positioning ahead of the NFP report.