Local Data that Could Dollar to Fresh Lows this Week

Dollar index retakes 95.00
CNY data better
Nikkei 0.09% Dax -0.47%
Oil $46/bbl
Gold $1229/oz.

Europe and Asia:
CNY 6.9% vs. 6.8%
EUR CPI 1.3% as forecast

North America:
USD NY State Empire 8:30

The dollar bounced back slightly on the first trading day of the week in very quiet Asian and European dealing marked mainly by some profit taking flows.

After putting in one of the worst performances in the recent months, the greenback saw a mild bid today with dollar index inching back towards the 95.00 level ahead of the North American open. The move, however, appeared to be nothing more than some light profit taking as sentiment towards the buck remains grim in light of horrid Retail Sales data last Friday.

Despite assurances from Fed officials that they are on a steady path towards normalization of monetary policy and despite tight labor markets, US inflation and more importantly US consumer spending are tepid at best. With price levels showing no upside pressure at all while the US consumer continues to be hesitant to spend. This was the the fifth month in a row that US retail sales have missed expectations indicating that US consumers are far more interested in reducing debt rather than increasing spending. This pattern does not bode well for GDP growth in the second half of this year and is sure to make the Fed hesitate with respect to any further rate hikes. Fed funds futures are now pricing a less than 50% chance of a rate hike by December.

This week, US data calendar is virtually barren with most of the focus elsewhere, but given the negative sentiment against the greenback, most of the majors could extend their gains especially if local data comes in better than forecast. Of key note to FX traders this week – Australian employment results, UK Retail Sales and the monthly ECB and BOJ meetings. With momentum clearly aligned against the dollar EURUSD could test 1.1500, cable 1.3200 and Aussies .7900 if respective eco data proves supportive.