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- Did the dollar lost its steam – the answer in the critical new week
Did the dollar lost its steam - the answer in the critical new week
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Loading...The new week is set to be driven by economic news - on Tuesday, traders will focus on Gross Domestic Product figures in Germany as well as the Eurozone. These news will first show how the world's fourth-largest economy is managing, and then at what level is the economy of the Old Continent as a whole. After the Dovish statements by the President of the European Central Bank Mario Draghi in recent weeks - this report will give signals whether the region is ready to cut the massive program of quantitative easing by the central bank. A day after that, CPI data in the region will be published on Wednesday, with market participants reporting on inflation rates - which is directly related to ECB plans for record low interest rates and QE. The news of both days may have the necessary support for the euro, which, despite the heavy losses it has suffered against the dollar, has shown a fighting spirit over the past few days and already has a prerequisite for new EUR/USD rise.
The U.S. dollar did an impressive upswing against virtually all of its rivals, with a closely followed index hitting fresh four-month high. But how much juice is left in a rally inspired by rising interest rate expectations and weaker economic data elsewhere? The ICE U.S. Dollar Index DXY, a measure of the currency against six major rivals, topped the 93-level for the first time since December. The U.S. unit over the past several weeks was teased higher first by rising Treasury yields that reflected higher interest rate expectations, as well as by sluggish economic data outside the U.S., which weighed on its main rivals, including the euro. This is why next weeks' news are so crucial for EUR/USD. The fact that the European Central Bank wasn’t ready to sound a full-throated hawkish embrace of policy normalization at its last meeting, also helped the dollar, which in turn drew support from the interest rate-hiking Federal Reserve. Global macro indicators have also been pointing down, and when the rest of the world does badly, the dollar often rises. In April, a seasonally weaker dollar month, the greenback gauge rallied 1.9%, its biggest monthly advance since November 2016. The index is up around 0.9% in the year to date but remains more than 6.5% below its level from a year ago. Now market participants wonder whether all the good news is priced in, including the rediscovered love for the interest-rate differential story, which often drives movement by currency pairs. “The dollar has indeed started to catch up to where it ‘ought’ to have been trading with regards to relative economic surprise indices,” wrote Nordea strategists Martin Enlund and Andreas Steno Larsen, in a note. Surprise indexes rise when data beats expectations and decline when it falls short. Equally, “the last time the difference between the U.S. and [eurozone] surprise indices got as big as [this week],” which was in 2012, “the euro-dollar pair dropped by 8% on the quarter,” Enlund and Steno Larsen said. If that happened again, it would leave the euro EURUSD, +0.1097% at $1.12 by July, compared with $1.1878 on Wednesday. But investors might take it with a grain of salt. U.S. economic reports haven’t been stellar either. Last week’s manufacturing and nonmanufacturing indexes for example were weaker than expected, as were April nonfarm payrolls. “As a result, the U.S. economic surprise index has started to deteriorate and further downside beckons,” said the Nordea analysts. Still, they recommended maintaining a short position in the euro until it hits $1.1850. Elsewhere, “global markets have clearly left Goldilocks territory, as evidenced by equity and emerging market turmoil,” the analysts wrote, citing deterioration in global macro indicators, as well as monetary policy normalization by the Federal Reserve. Plenty of emerging economies, such as Turkey and Argentina, rely on dollar funding, and higher interest rates in the U.S. make access to credit more expensive for them. While this could mean rough sailing for emerging markets, it creates a supportive backdrop for the greenback.
The important economic news for the new week 14.05 - 18.05.2018
Monday
14:20 USA - OPEC Monthly Report
16:40 USA - FOMC Member Bullard Speaks
Tuesday
04:30 Australia - RBA Meeting Minutes
05:00 China - Industrial Production
09:00 Germany - Gross Domestic Product
11:30 UK - Claimant Count Change
12:00 UK - Inflation Report Hearings
12:00 Europe - Gross Domestic Product
15:30 USA - Retail Sales
Wednesday
02:50 Japan - Gross Domestic Product
12:00 Europe - CPI
15:30 USA - Building Permits
16:15 USA - Industrial Production
Thursday
04:30 Australia - Employment Change
15:30 USA - Philadelphia Fed Manufacturing Index
Friday
15:30 Canada - Retail Sales
15:30 Canada - CPI
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