Where next for the USD?
|The latest CFTC positioning shows that asset managers have been continuing to add to dollar short positions as a recent string of US data has shown that the US economy is slowing down. In early January the US ISM Services PMI prints showed a sharp slowdown being anticipated by purchase managers and US manufacturing production on January 18 showed a decline to -0.5% vs 1.8% expected.
The EUR outlook is further weakening the USD
There has been a recent string of better-than-expected Eurozone data supporting the euro with Industrial Production beating maximum expectations at 2% y/y last week and the Global Services & Composite PMIs at the start of the year coming in above markets’ maximum expectations and nearly in expansionary territory (49.8 and 49.3 respectively). This picture was less clear with this week’s PMI prints which showed a very mixed print. German Manufacturing was lower than expected at 47, but French Manufacturing data was higher than expected at 50.8 vs 49.6 expected. The Eurozone figures as a whole were higher than expected, but the mixed data from France and Germany have something for both the buyers and sellers. However, the chances of the Eurozone avoiding a recession have increased over the last couple of weeks. The next directional nudge is most likely to come from the Fed as long as earnings don’t hold any big surprises. Keep an eye on Tesla’s earnings due out on Thursday.
Fed the main focus for USD direction
This will mainly depend now on the communication that we get from the Federal Reserve next week. We are now in the Fed’s blackout period before the decision on Wednesday next week (February 01). The latest sentiment is that the market expects the Fed to start to talk about the signs it will need to see in order to pause rates. So-called Fed watcher, WSJ journalist ’ Nick Timiraos, is often looked at as to what the Fed’s ‘unofficial’ messaging is. This is his latest tweet which affirms the present sentiment:
Of course, there are no guarantees that the Fed will discuss pausing rates, but inflation is falling and the US economy is slowing. This means it would make sense for this question to start to be asked. As long as these expectations remain it is not unreasonable for the USD to remain offered into the Fed meeting next week. This could also keep the EURUSD underpinned.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.