Will the dollar extend its post-FOMC rallies? Or will this week’s data releases turn the tides against the currency? Here are catalysts you should watch out for.
Inflation numbers (Nov. 14, 1:30 pm GMT)
The Fed didn’t talk much about inflation in its November statement, only sharing that both headline and core inflation “remain near 2 percent” and that indicators of longer-term inflation are “little changed, on balance.”
This week analysts expect to see improvements in both headline (0.1% to 0.3%) and core (0.1% to 0.2%) consumer prices.
They believe that lower numbers for factors such as used vehicle prices and housing rent are temporary and are expected to go back up in October.
Retail sales (Nov. 15, 1:30 pm GMT)
Last month’s release didn’t really energize dollar bulls, as data reflected a second consecutive monthly slowdown in retail activity in September.
Despite that, market geeks are expecting a strong start to this year’s last trading quarter. After all, employment prospects remain robust and confidence remains strong despite the recent volatility in equities markets.
Analysts see headline retail sales growing by 0.5% (from -0.1%) while core retail activity is expected to increase by 0.6% (from 0.1%) in October.
Upside surprises will support the Fed’s hawkishness and likely fuel the dollar’s rally. On the other hand, another downside surprise might inspire the Fed to reconsider its rate hike schedule and take some shine off the dollar’s recent gains.
FOMC member speeches
Over the next few days voting FOMC members like San Francisco’s Daly, Brainard, Quarles, Atlanta’s Bostic, and Governor Powell himself will share their two cents in front of different audiences.
Last week’s FOMC statement has told us that strong employment, inflation, and consumer spending prospects have placed the members firmly in the rate hike train.
This week traders will likely look for clues on how hawkish Fed members will likely be AFTER they raise rates in December.
We know that newly-appointed Mary Daly isn’t too worried about negative stock market reactions to higher interest rates; Brainard is willing to push rates above its neutral rate in the short-term; Quarles isn’t a fan of leaning too much on inflation reports, and Bostic is still on board to gradually raise rates.
Will the latest data releases and market price action convince one or more of these members to change their interest rate biases?
Check out our forex calendar so you can mark them speeches and Q&A events!
Last Week’s Price Review
The Greenback is turning in another mixed performance for the week (as of 6:00 pm GMT).
But despite the mixed performance, the Greenback’s price action was actually roughly uniform, so the Greenback wasn’t just being pushed around by its peers.
The Greenback started the week on a weak footing. And market analysts are practically unanimous in pinning the blame for the Greenback’s early slide on political uncertainty ahead of the U.S. midterm elections.
And when the election results began to trickle in, there were signs that Congress would be split since results were pointing to a Senate win for the Republicans while the Democrats looked set to take over the House of Representatives.
And when it became official that the Democrats were able to secure the needed 218 seats to take over the U.S. House of Representatives, the Greenback got hit by selling pressure across the board.
The bleeding finally stopped when Trump announced that he would give a post-election speech.
I will be doing a news conference at The White House – 11:30 A.M. Will be discussing our success in the Midterms!
— Donald J. Trump (@realDonaldTrump) November 7, 2018
The Greenback even began to recover ahead of Trump’s speech. And according to market analysts, that was due to short-covering ahead of the FOMC statement and Trump’s speech, as well as relief buying since a split U.S. Congress was an expected scenario.
As for Trump’s speech, the verbal spat between Trump and CNN’s Jim Acosta was quite amusing, but the event was largely a non-event.
Anyhow, the Greenback steadily attracted buyers on the majority of USD pairs, then jumped higher when the Fed finally announced its monetary policy statement since the Fed had a positive assessment of the U.S. economy while also maintaining that risks to their outlook “appear roughly balanced.”
The Fed also maintained its hiking bias since it had the following forward guidance:
“The Committee expects that further gradual increases in the target range for the federal funds rate.”
All that were interpreted as being hawkish and as a signal that the Fed’s still on track for a December rate hike. And so the Greenback spurted higher and even attracted some follow-through buying on Friday.
The Greenback also appears to have been feeding off the pound’s weakness and acting a as a safe-haven on Friday since the Greenback jumped higher (except against JPY and CHF) when British Transport Minister Jo Johnson announced his resignation while also urging the British public to call for another Brexit vote.