Which economic themes can move the Greenback around this week? Here’s a short list.
Retail sales (Oct. 15, 12:30 pm GMT)
In a few hours, we’ll see if consumer activity remained strong in the U.S. in September. Market geeks expect to see headline retail sales jump from 0.1% to 0.7%, while the core figure is expected to print a 0.4% growth following August’s 0.3% uptick.
With global equities taking hits and investors worrying about Uncle Sam’s borrowing costs lately, a reminder of the economy’s strength would support the Fed’s rate hike schedule and likely push the Greenback higher.
On the other hand, significant misses in the report could underscore the investors’ worries and even low key support Trump’s claims that the Fed is “crazy” for raising its rates as quickly and as sharply as it’s currently doing.
FOMC meeting minutes (Oct. 17, 6:00 pm GMT)
In the Fed’s statement and Governor Powell’s presser a few weeks ago, we learned that the Fed still expects “gradual increases” in its interest rate even though it had dropped its statements about being “accommodative.”
More importantly, an updated dot plot chart showed that FOMC members still mostly expect another rate hike this year and possibly three more next year.
This week, the meeting minutes will tell us just how hawkish Powell and his friends still are. If one or more of them express concerns over their rate hike schedule, then we might see the dollar dip some more against its counterparts.
But if the FOMC gang are still on board and are talking good things about the economy, then they could stick their “crazy” ways and continue its aggressive rate hike schedule.
Oh, and keep an eye out for any mention of a “neutral rate.” Members claim not to know at what rate neither stimulates nor restrain growth is, but we might get clues on what some members are sharing.
U.S. Treasury yields
Yields of U.S. bonds made notable highs last week, enough to get more than a few investors concerned over its impact on Uncle Sam’s growth.
Need a little refresher? Read our quick Primer on Government Bonds
This week pay close attention to speculations over the U.S.-China trade war which had affected equities prices and the demand for safe havens such as government bonds.
Trump may also up his criticisms for the Fed, which could put more pressure on higher-yielding investments like equities and push bond yields higher.
Last but not the least, keep your eyes peeled for a bit of short-covering from the previous week’s strong moves.
Last Week’s Price Review
The Greenback is currently in second-to-last place (as of 5:00 pm GMT), so two weeks of net wins for the Greenback will soon come to an end.
And the Greenback was brought low this week because of falling U.S. bond yields and Trump, although market analysts were also pointing to the slide in U.S. equities. As for the deets, read on and find out.
Before we begin, let’s first remove USD/CAD from the overlay since that pair is clearly an outlier.
As you can see, the Greenback went on a three-day losing streak. The Greenback actually started the week on a mixed note, but selling pressure began to mount during Monday’s U.S. session.
There were no apparent catalysts, but market analysts were saying that the slide in U.S. equities may be dampening demand for the Greenback since U.S. equities were retreating because of the ongoing trade war between the U.S. and China and the elevated levels of U.S. bond yields, which may threaten U.S. economic growth.
Anyhow, the Greenback would find buyers again during Tuesday’s London session, likely because the Greenback was feeding off the euro’s weakness, as well as safe-haven demand for the Greenback since European equities were on the back foot.
The Greenback’s rise was only short-lived, though, since U.S. bond yields slumped during Tuesday’s U.S. session, dragging the Greenback broadly lower.
U.S. bond yields recovered on Wednesday, so the Greenback got a chance to lick its wounds.
Unfortunately for the Greenback, bond yields slumped again during Wednesday’s U.S. session, so the Greenback weakened against everything except AUD, NZD, and CAD.
However, the Greenback would also eventually lose out to AUD and NZD, thanks to this comment from Trump:
“I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy.”
And Trump’s words apparently inspired follow-through selling on the Greenback since U.S. bond yields began turning higher on Thursday, but the Greenback had a rough time, likely because Trump kept criticizing the Fed, saying during a later Fox News interview that:
“The problem I have is with the Fed. The Fed is going wild. I mean, I don’t know what their problem is that they are raising interest rates and it’s ridiculous.”
“The problem in my opinion is Treasury and the Fed. The Fed is going loco and there’s no reason for them to do it. I’m not happy about it.”
Worse, bond yields would turn lower again, dragging the Greenback lower yet again, although market analysts were also saying that losses in Wall Street were weighing on the Greenback as well.
As a side note, the U.S CPI report was released on Thursday and that was a disappointment. The Greenback had the usual bearish reaction, but follow-through price action was not uniform and there even signs of buying pressure, possibly because of short-covering.
Getting back on track, U.S. bond yields eventually found support and were turning higher again by Friday’s Asian session, but the Greenback was steady for the most part.
U.S. bond yields resumed sliding later, though, and it looked like the Greenback was about to be dragged lower again. However, the pound, the euro, and the Swissy were broadly in retreat, which may have lent support to the Greenback.
And when Friday’s U.S. session rolled around, the Greenback actually began tilting broadly higher (except against the yen) even as U.S. bond yields slumped deeper. And market analysts attributed that to rising equity prices, although short-covering after a week of Greenback bashing is also a possible reason.
In any case, the damage was already done, so the Greenback’s two-week winning streak will soon come to an end.