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Easing trade tensions and not-so-hawkish remarks weighed on the dollar last week. Which catalysts can influence its price action this week?

Durable goods orders report (Nov. 21, 1:30 pm GMT)

Traders look at durable goods orders because purchases of products with long life expectancies (longer than three years) signals confidence in the economy and maybe increased activity down the road.

This week analysts expect to see a 2.2% decline in the headline reading, while the core figure is expected to tick 0.4% higher after coming in flat in September.

Market sentiment

If we can have two takeaways from last week’s price action, it’s that (a) positive developments in the U.S.-China trade conflict are dollar bearish and that (b) traders are ready to price in less hawkish FOMC messages.

With only about 10 days before Donald Trump meets with Xi Jinping, all eyes will be on any and all updates that might point to a trade deal between the two of the world’s largest economies.

If U.S. officials pull a Mike Pence and share their hard stance against China, then we might see higher-yielding currencies take hits and the dollar shoot up. But if we see compromises in the horizon, then the dollar could extend its long-term uptrend.

Don’t discount overall market sentiment though! With the Thanksgiving holidays just around the corner, market players can continue to price the less hawkish FOMC messages that we saw last week and extend the dollar’s losses.

Last Week’s Price Review

The Greenback is currently trailing behind its peers in second-to-last place (as of 6:00 pm GMT), likely because of growing hopes that the U.S. and China can talk things out and call a truce or even end the ongoing trade war.

Dovish comments from a couple of Fed officials also put the hurt on the Greenback on Friday, ensuring that the Greenback will close out the week as a major loser.

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

Before anything else, let’s remove GBP/USD from the overlay since that’s clearly an outlier.

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

As you can see, the Greenback actually had a mostly strong start but began trending steadily and broadly lower after the Wall Street Journal (WSJ) released a report claiming that U.S. Treasury Secretary Steven Mnuchin has talked about restarting trade talks with his Chinese counterpart, Vice Premier Liu He, and after the South China Morning Post (SCMP) released a similar report, while also adding that Vice Premier Liu He will be going to the U.S. to restart trade talks, although a date has yet to be set.

And just so you know, Chinese Foreign Ministry Spokesperson Hua Chunying already confirmed those trade-related rumors. But again, there’s still no scheduled date for a meeting.

As to why this positive trade-related news apparently caused the Greenback to steadily slide broadly lower for most of the week, that’s because the prevailing narrative is that the ongoing trade war will have less of a negative effect on the U.S. economy, which has sent safe-haven flows towards the U.S. and fueled demand for the Greenback.

But since trade war concerns faded this week because of growing hopes for a truce or an actual peace treaty, it’s only natural that some market players may decide to unwind some of those safe-haven bets.

Anyhow, selling pressure on the Greenback was practically relentless. Heck even the better-than-expected readings for U.S. CPI and U.S. retail sales only acted as minor speed bumps for the bears.

And as a final parting shot, the Greenback got whupped across the board on Friday, thanks to cautious comments from Dallas Fed President Robert Kaplan and Fed Vice Chair Richard Clarida.

As for some deets, Kaplan warned during a Fox News interview that the U.S. economy could potentially slow down in 2019 and 2020 because Kaplan expects that the boost from Trump’s fiscal stimulus will fade (emphasis mine).

“Growth in the United States this year is going to be close to 3 percent. What I’m conscious of is part of the bump this year is all due to the fiscal stimulus. The government spending that we talked about. Not the corporate tax reform so much, as the individual tax cut financed by increasing debt to GDP. That’s going to start to wane into ’19 and ’20.”

Clarida, meanwhile, heavily implied that the Fed is switching to a wait-and-see mode when he said the following during a CNBC interview (emphasis mine).

[W]e’re at a point now we really need to be especially data dependent. The economy’s doing well. We’re looking for signals from the labor market, from inflation, to get a sense of both the pace and the destination for policy. So this is very much in data dependent mode right now.”

The interviewer asked if the Fed is shifting from rate hike mode to a more neutral, wait-and-see mode and Clarida answered by simply saying “Exactly”.

Other than that, Clarida was also asked how much of a “threat” the global economic slowdown is to the U.S. economy and, well, Clarida had this to say (emphasis mine):

“[T]here is some evidence of global slowing. I think it’s early days. You know, the IMF has marked down its global outlook a bit. But certainly, at least speaking for myself, that’s something that is going to be relevant as I think about the outlook for the U.S. economy. You know, because it impacts big parts of the economy through trade and through capital markets and the like.”