Traders of Treasuries and the dollar, who are already anxious about the U.S. twin deficits, won't welcome the dimming allure of the nation's soft economic data and it could give bears more reason to sell.
The gap between Bloomberg's overall U.S. economic surprise index and the component based on just surveys and business cycle indicators has started narrowing as they exceed analyst estimates to a lesser degree. After all, while wage growth and inflation have improved recently, measures for the retail and trade sector have been more lackluster.
Further convergence in hard and soft data bodes ill for the greenback, especially as currency bets based on net positioning on the ICE U.S. Dollar Index have remained negative for several months already.
What follows from now on and what should traders care about?
What is directly relevant to traders is that lower analysts' expectations and the publication of real data will lead to increased investor sensitivity. In other words, if actual data posted in the calendar is worse or better than expected, it will have a much stronger impact on the USD.
Further convergence of hard and soft data predicts negative sentiment for the USD, especially when ICE net positions remain negative for several months.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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