USD sentiment has taken a beating after the September NFP came in much weaker than expected and wage growth disappointed for yet another month.
This week’s heavy data calendar could easily re-make or completely break the USD-decoupling trade.
Indeed, recent data has shaken investor confidence in the strength of US domestic demand and the ability of the US economy to generate inflation in the face of global disinflation. This week's CPI, industrial production and retail sales data will be closely scrutinised for clues about the US economic and, by implication, Fed outlook.
This week’s Fed speakers should shed further light on the likelihood of lift-off in coming months.
Given that the market has pushed back its rate-hike expectations till March 2016, however, we think that positive economic surprises or more hawkish Fed commentary should have a stronger directional impact on USD than data disappointments or dovish policy signals.
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