DXY: Will the dollar appreciate despite soft US macro data?
Fawad Razaqzada June 16, 2017 6:07 PM
In the US, incoming economic data has been rather weak recently. Both employment and inflation figures have been soft this month. Today we had weaker-than-expected readings on building permits and housing starts, while the UoM Consumer Sentiment also missed the mark.
In the US, incoming economic data has been rather weak recently. Both employment and inflation figures have been soft this month. Today we had weaker-than-expected readings on building permits and housing starts, while the UoM Consumer Sentiment also missed the mark. The dollar weakened but didn’t fall of a cliff. That may be because of what the Fed had announced on Wednesday: that the soft patch in economic data is transitory and that this won’t stop the central bank from tightening its belt further. What’s more, a dovish Bank of Japan and European Central Bank has helped to support the dollar with USD/JPY and EUR/USD showing possible reversal signs in their respective bearish and bullish trends. Thus, the dollar may be able to appreciate despite the weakness in US macro figures. However if things start to turn ugly then market participants may price in the possibility that the Fed may actually be wrong in its forecasts about the US economy. For now though, investors are giving the Fed the benefit of the doubt – only just.
But after a busy week of fundamental events, next week is set to be a quieter one in terms of economic data. There is however one more key central bank meeting to look forward to as the Reserve Bank of New Zealand makes its policy decision on Wednesday, albeit no change is expected to be announced. Eurozone PMIs will be among next week's key data, due on Friday. From North America, Canadian retail sales (Thursday) and CPI (Friday) are among the highlights, while in the US there's nothing significant scheduled apart from a few second-tier macro pointers here and there.
The Dollar Index managed to form a potential reversal pattern following a hawkish Fed meeting on Wednesday. It created a hammer candlestick pattern at around the 61.8% Fibonacci retracement level after the break below the prior low at 96.50 proved to be a false move. So we may have seen a reversal pattern unfold for the dollar index, similar to what had happened at the turn of the year at around 103.55, which marked the end of the dollar rally. However if the DXY were to hit a new low on the year in the coming days then all the bullish bets would be off.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.