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So far, the trade truce between the U.S. and China isn’t churning out pips for the Greenback. Which catalysts can move the dollar this week?

FOMC member speeches

One look at the forex calendar will tell you that a bunch of FOMC members are scheduled to give speeches throughout the week. Not only that, but ALL of them are voting members this year.

Here’s a short list for you:

December 3
11:30 am GMT: Richard Clarida – Bloomberg TV & Radio interview
1:00 pm GMT: Randal Quarles – speech in New York
2:15 pm GMT: John Williams – opening remarks in New York
3:30 pm GMT: Lael Brainard – speech in New York

December 4
3:00 pm GMT: John Williams – labor force trends presser in New York

December 6
1:15 am GMT: Randal Quarles – opening remarks in California
5:15 pm GMT: Raphael Bostic – speech in Atlanta
11:30 pm GMT: John Williams – interview by Mervyn King in New York

December 7
5:00 pm GMT: Lael Brainard – financial stability speech in DC

The cherry on top is Fed head honcho Jerome Powell himself testifying before Congress at 1:15 pm GMT on Wednesday.

Given that some Fed members have hinted their preference for a more discerning pace of tightening down the road AND Powell himself has shared that the Fed’s current rates are “just below” its neutral levels, you can bet that traders will pick apart their statements for hints of a not-as-hawkish policy direction in 2019.

NFP week shenanigans

What’s an NFP week without NFP-related volatility?

With the Fed looking like it’s about to be more data dependent down the road, analysts will pay closer attention to top-tier releases such as the employment reports.

Market geeks expect to see a net addition of 200,000 jobs in November, lower than the 250,000 jobs added in October.

They have higher expectations for wages, with average hourly earnings expected to rise by 0.3% for the month after October’s 0.2% increase.

Last but not the least, the unemployment rate is expected to maintain its 3.7% reading.

You know the drill. Big hits or misses tend to directly affect the dollar’s intraday price action. The impact might even be more pronounced this week depending on how much Fed members sell their push for more dependence on economic data.

Fed members and a lot of market players will be watching the ADP report on Wednesday, the jobless claims on Thursday and the NFP releases on Friday, so make sure you’re also around during the releases!

Last Week’s Price Review

The Greenback is a net winner again this week since it outpaced the euro to claim the third top spot (as of 6:00 pm GMT). Did that surprise you?

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

The Greenback had a weak start but it caught a bid during Monday’s London session, likely because of safe-haven demand due to the returning risk-off vibes at the time.

However, it’s also very likely that the Greenback was gaining mainly at the euro’s expense since the euro weakened (and the Greenback gained strength) after the Ifo institute revealed that business sentiment in Germany deteriorated even further.

The euro also got hit by fresh sellers (and the Greenback got a bullish boost) when ECB Overlord Draghi said during Monday’s U.S. session that “The data that have become available since my last visit in September have been somewhat weaker than expected.”

In any case, the Greenback’s price action became more mixed come Tuesday. However, the Greenback caught a bid when Fed Vice Chair Richard Clarida gave a speech during the U.S. session since Clarida said that:

“U.S. economic fundamentals are robust, as indicated by strong growth in gross domestic product (GDP) and a job market that has been surprising on the upside for nearly two years”

Clarida also said that “risks have become more symmetric and less skewed to the downside.”

More importantly, Clarida repeated his neutral message from two weeks ago that the Fed should be especially data-dependent, but he gave his message a hawkish twist this time around since he also said that (emphasis mine):

“If, for example, incoming data in the months ahead were to reveal that inflation and inflation expectations are running higher than projected at present and in ways that are inconsistent with our 2 percent objective, then I would be receptive to increasing the policy rate by more than I currently expect will be necessary.”

Unfortunately for USD bulls, the Greenback was forced to shed some of its gains when White House economic adviser Larry Kudlow said that Trump believes that there is a “good possibility” that a deal between China and the U.S. may be struck during the G20 summit, which revived hopes for a truce to the ongoing trade war between the U.S. and China.

Follow-through selling was  only limited, though, and USD pairs became range-bound, likely because traders were bracing themselves for Fed Chair Powell’s speech.

And when Fed Chair Powell finally spoke, he gutted the Greenback like a fish since Powell parroted Clarida’s neutral message when he (Powell) said that (emphasis mine):

“While FOMC participants’ projections are based on our best assessments of the outlook, there is no preset policy path. We will be paying very close attention to what incoming economic and financial data are telling us.”

Basically, Powell implied that the entire Fed is shifting to a more neutral and data-dependent stance since Clarida is not the only one who holds that view.

And while Powell also said that “Interest rates are still low by historical standards,” he also said that:

“[T]hey remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth.”

And to give that comment its proper context, Powell said during an Oct. 3 speech that rates were “a long way from neutral,” so the implication here is that the Fed’s pace of tightening may slow down in the future.

Anyhow, the Greenback’s bearish reaction to Powell’s comments was intense but short-lived since follow-through selling only lasted for about an hour.

After that, the Greenback’s price action became more mixed and most USD pairs were essentially just range-bound.

The Greenback did get a bearish slap when the FOMC minutes were released.

Sure, the minutes signaled that a December rate hike was on the cards when it noted that:

“[A]lmost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon.”

However, the minutes also reinforced the idea that the Fed is shifting to a more neutral monetary policy stance since (emphasis mine):

“Participants also commented on how the Committee’s communications in its postmeeting statement might need to be revised at coming meetings, particularly the language referring to the Committee’s expectations for “further gradual increases” in the target range for the federal funds rate. Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook.”

There was also this bit, which is what Fed Chair Powell and Fed Vice Chair Clarida have also been saying (emphasis mine):

“Participants emphasized that the Committee’s approach to setting the stance of policy should be importantly guided by incoming data and their implications for the economic outlook. They noted that their expectations for the path of the federal funds rate were based on their current assessment of the economic outlook. Monetary policy was not on a preset course; if incoming information prompted meaningful reassessments of the economic outlook and attendant risks, either to the upside or the downside, their policy outlook would change.”

And finally, the September FOMC minutes revealed that there were discussions about monetary policy becoming “modestly restrictive for a time” in order to prevent a potential overheating of the U.S. economy, which means a more aggressive tightening pace. Well, such discussions were absent in the November FOMC minutes.

Anyhow, the FOMC minutes dented the Greenback a bit, but USD pairs were still essentially range-bound, likely because Powell already pre-empted the overall dovish message of the FOMC minutes.

The Greenback would finally start moving again on Friday, though, since most USD pairs were bid higher.

There were no apparent catalysts, but as noted in Friday’s London session recap, the Greenback may have been driven higher by safe-haven demand and/or short-covering.

Other market analysts, meanwhile, were also pointing to safe-haven demand for the Greenback, but they specifically attributed safe-haven demand for the Greenback to expectations that trade talks will fail to pan out.

In any case, the Greenback’s recovery on Friday allowed the Greenback to outpace the Swissy and the euro to claim the third top spot of the week.