Uncle Sam is printing its quarterly GDP report this week! Will the Greenback regain its bullish momentum?
Advance GDP report (July 27, 12:30 pm GMT)
Uncle Sam grew by 2.3% (it was revised down later to 2.0%) from a year earlier in Q1 2018, which was (then) higher than the 2.0% growth that market players had expected.
Unfortunately, the GDP price index failed to meet expectations when it only grew by 2.0% and not the expected 2.2%. The mixed reading was all the bears needed to take some profits off the table after a relatively good run earlier in the week.
A strong retail sales growth is expected to drive the economy this time around. In fact, analysts are expecting growth as high as 4.1%!
But that’s for Friday. Between then and now, we might see a bit of profit-taking from last week’s dollar shorts or maybe some weakness as traders stay away from the Greenback before the top-tier report.
Last Week’s Price Review
The Greenback is the third biggest loser of the week (as of 5:00 pm GMT), which is a poor performance in itself. However, the Greenback’s poor performance become even poorer when you consider that the Greenback was last week’s champ and was also a winner for most of the week before surrendering a large chunk of its gains on Thursday and Friday.
And one way to summarize the Greenback’s price action this week is that the Greenback was lifted by Fed Chair Powell but was eventually brought low by U.S. President Trump.
As mentioned earlier, the Greenback initially had a good run. And that all started when the Greenback began to trade higher ahead of Fed Chair Powell’s testimony on Tuesday.
There were no catalysts at the time, but as noted in Tuesday’s London session recap, that may have been due to short-covering and/or preemptive positioning ahead of Powell’s testimony.
Speaking of Powell’s testimony, that was positive overall since Powell presented a rather optimistic assessment and outlook for the U.S. economy. Powell also tried to downplay the impact of Trump’s trade policies on monetary policy when Powell said that:
“[I]t is difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy.”
Powell was even more upbeat (on the trade war) when he was grilled during the Q&A portion since Powell shrugged off the risks involved in a trade war and even suggested the it could be a good thing if Trump plays his cards rights and manages to lower tariffs.
Anyhow, the Greenback steadily climbed against everything before encountering sellers when a bunch of low-tier and mid-tier U.S. data failed to impress on Wednesday.
And more sellers came when Fed Chair Powell testified again. Sure, Powell repeated his upbeat assessment and outlook. But as noted in Wednesday’s U.S. session recap, Powell was pressed during the Q&A portion and he admitted some concerns about inflation when he said that:
“I would say it’s roughly balanced, maybe slightly more worried about low inflation still.”
The Greenback would eventually resume its slide come Thursday, though. There were no apparent catalysts, but as noted in Thursday’s London session recap, market analysts were still pointing to Fed Powell’s recent testimonies since they reinforced rate hike expectations and put interest rate differentials and monetary policy divergence into play (in favor of the U.S. dollar), even though Powell struck a slightly more cautious note during his second testimony.
Anyhow, that was the last hurrah for Greenback bulls since bears would rush in during Thursday’s U.S. session, thanks to snippets of Trump’s CNBC interview wherein Trump said that:
“I’m not thrilled [with hiking rates].”
“Because we go up and every time you go up they want to raise rates again. I don’t really — I am not happy about it. But at the same time I’m letting them do what they feel is best.”
“I don’t like all of this work that we’re putting into the economy and then I see rates going up.”
And that’s not the end of it since the full CNBC interview was released during Friday’s London session. And as noted in Friday’s London session recap, Trump also expressed his willingness to escalate a trade war (with China) to the point that all $505.5 billion worth of Chinese imports get slapped with tariffs. Basically, Trump was saying that he’s ready and willing to have a full-scale, no-holds-barred trade war with China.
And more selling pressure swamped the Greenback when Trump implied that the Greenback is too strong when he tweeted the following shortly after the full CNBC interview was released.
China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing field…
— Donald J. Trump (@realDonaldTrump) July 20, 2018