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Top-tier reports inspired intraday volatility among dollar pairs. What’s in store for the Greenback this week?

CPI report (July 12, 1:30 pm GMT)

Consumer prices rose by another 0.2% in May as gasoline prices grew at a more restrained pace.

Food prices went unchanged, new motor vehicle prices picked up, and healthcare costs edged higher. Luckily for the Greenback, traders were more focused on pricing in the Trump-Kim summit that happened during the month.

Analysts are expecting another 0.2% increase in monthly prices in June. Ditto for core CPI, which also showed a 0.2% reading in May.

A faster-than-expected CPI increase would make it easier for the Fed to be more hawkish this year. On the other hand, a significantly slower-than-expected reading could help extend the dollar’s decline from last week.

Trade war updates

Unless you were too busy prepping for the big FIFA games over the weekend, then you’ll know that the U.S.’ tariffs on China’s goods have officially gone live last Friday.

Fast forward to today and China has already retaliated by activating its own set of tariffs. In addition to that, the EU has also threatened the Trump administration.

In a conference over the weekend, French Finance Minister Bruno Le Maire shared that “If tomorrow there is an increase in tariffs, like in the car industry, our reaction should be united and strong to show that Europe is a united and sovereign power.

Le Maire added that “we will react collectively and we will react firmly” if they are attacked. Talk about team spirit!

Watch the newswires closely for any global trade war updates that might cause sustained trends for the dollar!

Last Week’s Price Review

The Greenback is currently on track to closing out the week in last place (as of 5:00 pm GMT), so the Greenback’s three-week winning streak will soon finally come to an end.

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

The Greenback actually had a very promising start. There were no direct catalysts for the Greenback’s strength, but as noted in Monday’s London session recap, some market analysts were attributing the Greenback’s strength to relief buying and speculation that the ongoing trade spat will supposedly hurt U.S. trade partners more than the U.S. itself.

That’s not a new idea, I suppose. After all, the Greenback did have a good run during the June 18-22 trading week, thanks to former U.S. Treasury Secretary Lawrence Summers’ comment that a “Trade war is not likely to be large enough that its direct effects damage the economy profoundly.”

Getting back on topic, the Greenback’s rally eventually ran out of steam when the U.S. session rolled around. And aside from profit-taking, there was no apparent reason for the Greenback’s slide.

Some market analysts tried to pin the Greenback’s weakness on a stronger euro due to the compromise agreement on illegal immigration that was struck between German Chancellor Merkel and German Interior Minister Seehofer. But as you can see in the overlay of USD pairs above, the Greenback very clearly started moving broadly lower (except against JPY) before the announcement.

Anyhow, the Greenback’s slide stopped for a while before resuming when Tuesday’s London session rolled around.

And as stated in Tuesday’s London session recap, there weren’t really any apparent catalysts for the Greenback’s continued weakness, but some market analysts did suggest that market players may have been taking profits off the table ahead of Thursday’s FOMC minutes, as well as Friday’s NFP report.

After that, the Greenback continued to move lower before trading sideways after it finally found a bottom during Wednesday’s Asian session.

USD pairs later began to tilt broadly to the downside on Thursday (except USD/JPY).  Yet again, there was no clear reason why, but I conjectured in Thursday’s London session recap that the Greenback may have been weakened by preemptive positioning and/or profit-taking ahead of the FOMC’s meeting minutes, the ADP report, and ISM’s non-manufacturing PMI report.

The Greenback didn’t really react to the worst-than-expected ADP report, but it did appear to react positive to the stronger-than-expected reading for ISM’s non-manufacturing PMI.

As for the FOMC’s meeting minutes, price action clearly shows that the event was a dud and the Greenback even dipped a bit later, likely because the minutes didn’t really have any fresh surprises.

The Greenback also didn’t react when Trump fired the opening salvo of the Sino-US trade war by announcing that his anti-China tariffs will come into effect as scheduled, with more coming in two weeks, and then adding that the U.S. is willing to raise the total tariffs levied on Chinese goods to a whopping $500 billion.

As noted in Friday’s London session recap, however, the Greenback did appear to react to Chinese Foreign Ministry Spokesperson Lu Kang’s statement that China has fired back, officially starting the Sino-US trade war.

However, I also noted in the recap that we may just be seeing some preemptive positioning and/or profit-taking ahead of the NFP report.

Speaking of the June NFP report, that gave the Greenback a final bearish kick. Sure, jobs growth surprised to the upside. However, market players were likely more focused on the downside surprise for wage growth since average hourly earnings only rose by 0.2% month-on-month (+0.3% expected and previous).

Follow-through selling was limited, though, likely because the NFP report was still positive overall.