Ready to trade the dollar? Here are catalysts that might affect its price action over the next couple of days!
Durable goods orders (Oct. 25, 12:30 pm GMT)
Before we see the big GDP report, Uncle Sam will first publish the durable goods data, which shows how much more of the longer-lasting goods manufacturers have bought in September.
For newbies out there, know what a higher purchase means that manufacturers are more confident on the economy’s future.
Not only that, but the purchase of big-ticket items also tends to correlate with business investment (which factors into the GDP).
This week’s release will be more closely-watched than usual. See, analysts are expecting a slightly slower GDP in Q3, which won’t be too bad if businesses investment is still growing.
Market geeks expect the headline report to show a 1.1% annualized dip after seeing a 4.4% jump in August.
However, the core version – which takes away volatile items such as transportation – is expected to show a 0.3% growth after stagnating in the previous month.
Advance GDP report (Oct. 26, 12:30 pm GMT)
Will the bulls pull a Miley and party in the U.S.A. on Friday? We’re about to see the first estimate of the economic growth in Q3 2018, yo!
Analysts expect to see a 3.3% growth in the June – August period, which might be slower than Q2’s 4.2% reading but is still above the report’s average.
Word around is that trade will be a drag thanks companies stocking up on their Chinese imports before recent tariffs really take a bite out of their margins. Meanwhile, lower defense and construction spending are expected to have pulled government spending a bit.
Thankfully, consumer spending – which makes up a huge chunk of the GDP – is expected to continue boosting the overall numbers.
Since a bit of a slowdown is already expected, keep an eye out on the deets of the report. Are weaknesses a one-off kinda thing? Or do they point to trends that would prevent the economy from hitting another 4.0%+ growth?
Oh, and don’t forget to consider pre-emptive positioning and a buy-the-rumor, sell-the-news situation, alright? Traders love to speculate around top-tier events like these, so make sure you don’t get caught in a whipsaw or profit-taking!
Last Week’s Price Review
After last week’s slide, the Greenback recovered this week and is currently on course to closing out the week in third place (as of 5:00 pm GMT).
And the Greenback’s recovery was brought about by the FOMC minutes. Well, preemptive positioning ahead of the FOMC minutes, to be more precise. Although it’s also very likely that the Greenback may have been attracting buyers at the expense of the pound and the euro.
This week’s price action is almost the mirror image of last week’s price action in that the Greenback traded higher for almost three days.
U.S. bond yields recovered this week, but the Greenback didn’t really track U.S. bond yields too closely, as you can see in the overlay below.
However price action very clearly shows that the Greenback slumped during the London session, several hours before the U.S. retail sales report was released. Heck, the Greenback even recovered on some pairs after the retail sales report was released.
But as noted in Monday’s London session recap, there were no direct catalysts for the Greenback’s slump. The Greenback did appear to take some directional cues from U.S. bond yields, but I also conjectured that it’s also possible that falling U.S. equity futures may have been making market players jittery since market analysts have been partially blaming the slide in U.S. equities as the reason for the Greenback’s weakness last week.
And in hindsight, it’s also possible that the Greenback’s weakness may have been due to preemptive positioning. After all, there was little to no follow-through selling after the U.S. retail sales report failed to impress.
At any rate, the Greenback’s price action became a bit more mixed after that. However, it became apparent that the Greenback was in demand by the time Tuesday’s U.S. session rolled around. Risk appetite returned to the U.S. equities market, which may have fueled demand for the Greenback.
However, it’s also likely that the Greenback may have just been benefitting at the expense of the euro and the pound since the former began to weaken after Italian PM Conte railed against austerity measures, while the latter began to take hits after European Council President Tusk gave traders a reality check ahead of the E.U. Summit.
Another probable reason is that the Greenback was bid higher because of preemptive positioning and/or short-covering ahead of the FOMC minutes.
In any case, the Greenback continued to trend higher as the FOMC minutes loomed. And when the minutes were finally released, the Greenback raked in even more gains, but follow-through buying was only limited and the Greenback quickly began trading sideways, which implies that the Greenback’s rise in the run-up to the release of the minutes may have been fueled by preemptive positioning.
As for some deets, the minutes revealed that (emphasis mine):
“Almost all considered that it was also appropriate to revise the Committee’s postmeeting statement in order to remove the language stating that the stance of monetary policy remains accommodative.”
In contrast, the previous minutes only noted that (emphasis mine):
“Many participants noted that it would likely be appropriate in the not-too-distant future to revise the Committee’s characterization of the stance of monetary policy in its postmeeting statement. They agreed that the statement’s language that ‘the stance of monetary policy remains accommodative’ would, at some point fairly soon, no longer be appropriate.”
The change in language is subtle, but it clearly shows that the Fed has become more hawkish.
And the hawkish hints don’t end there since there was also this juicy bit (emphasis mine):
“A few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level in order to reduce the risk of a sustained overshooting of the Committee’s 2 percent inflation objective or the risk posed by significant financial imbalances.”
In contrast, only “A couple of participants indicated that they would not favor adopting a restrictive policy stance in the absence of clear signs of an overheating economy and rising inflation.”
Moving on, the Greenback eventually slipped during Thursday’s London session. There was no apparent reason for the slide and market analysts couldn’t pinpoint a reason. However, it does reinforce the idea that the Greenback’s rise ahead of the FOMC minutes may have been due to preemptive positioning.
And interestingly enough, U.S. bond yields slumped during Thursday’s U.S. session, but the Greenback actually gained strength. There were some rhetoric from Fed officials and it’s possible that risk aversion may have fueled demand for the Greenback.
However, the most likely reason is that the Greenback was feeding off the euro and the pound again since the Greenback began turning broadly higher (except on USD/JPY) after the E.U. sent an official warning letter to Rome, which caused the euro to wobble, and after a series of political tweets caused the pound to tank.
The pound’s rise was abruptly cut short when word got around that Norway and the E.U. have requested the World Trade Organisation (WTO) to establish a dispute resolution panel to verify the legality of U.S. tariffs on steel and aluminium.
And when China’s announced that it will also ask the WTO to form a dispute resolution panel, the Greenback’s price action began to diverge. And unfortunately for the Greenback, the Aussie apparently benefited from that announcement, so the Greenback has to content itself with third place.