Dollar huffs and puffs but makes little progress

Following last week’s key central bank meetings and the aftermath of those policy decisions this week, the dollar huffed and puffed but has essentially made little progress in the past fortnight. The Dollar Index rebounded notably at the end of last week but after a firmer first half, it looks set to close the week little-changed. Consistent weakness in US economic data has contradicted the Fed’s optimistic outlook on the world’s largest economy. The market is not sure whether to trust the Fed. Consequently, every time the dollar rallies, it gets sold just as quickly. As well as weakness in US data, the sharp falls in the price of oil has probably dampened inflation expectations. WTI may be up today, it is still set to log its longest streak of weekly declines since 2015. 

To be fair, though, we haven’t had any major US data releases this week to provide clear direction. Unfortunately, the economic calendar is fairly light again next week, so the choppiness in price action may continue for yet another week. That being said, there will be a few potentially market-moving macro pointers which should keep traders busy, especially towards the end of the week:

• Monday: German Ifo and US durable goods orders
• Tuesday: BoE’s Governor Mark Carney will hold a press conference about the Financial Stability Report – will be interesting to hear what he will say after the BoE’s economic advisor indicated he will vote for a rate rise soon.
• Wednesday: US weekly crude oil inventories report
• Thursday: German preliminary CPI and final US GDP
• Friday: Japanese CPI; Chinese official Manufacturing PMI; German retail sales; Eurozone CPI flash estimate; Canadian monthly GDP and US Core PCE Price Index, personal spending and income.

Ahead of next week’s data releases, the Dollar Index looks set to close back below last week’s high at 97.56. The lack of a more significant bullish follow-through after last week’s reversal looking price action (as indicated for example by the weekly hammer candlestick pattern at 96.35 support) is not exactly bullish. Yet, at the same time, the DXY remains well above its 200-week moving average and longer-term support at 91.90. So, the uncertainty continues, which means more pain for trend-followers but potentially lots of opportunities for range traders.