Market Drivers June 18, 2015

Dollar breaks down as key levels fall in EUR and GBP
UK Retail Sales slightly better
Nikkei -1.13% Europe -0.74%
Oil $60/bbl
Gold $1194/oz.

Europe and Asia:
CHF SNB keeps rates the same at -75bps
GBP UK Retail Sales 0.2% vs. 0.0%

North America:
USD CPI 8:30

USD Weekly Jobless Claims 8:30

USD Philly Fed 10:00

The dollar broke down in early European trade today as the after effect of yesterday’s FOMC press conference reverberated through the currency markets. Both the euro and cable hit fresh monthly highs as traders liquidated dollars longs in the wake of cautious comments by Fed Chairwoman Janet Yellen.

In contrast to market expectation Ms. Yellen offered no timeline to the possible rate hike suggesting that the normalization campaign could be delayed to as far forward as March of 2016. Noting that global growth was tepid and that US growth in H1 of this year missed the Fed’s own estimates, Ms. Yellen left plenty of doubt as to whether the Fed will act in September. With the market primed for a much more hawkish message yesterday’s nuanced rhetoric left many dollar bulls disappointed and today price action reflects that sentiment.

The euro broke through the key 1.1400 level while cable pushed through 1.5900 aided by slightly better Retail Sales data that came in at 0,2% versus 0.0% eyed. The anti-dollar move was broad in scope with only kiwi lagging the rest of the field after New Zealand GDP data missed the mark and pushed the pair to fresh lows under the .6900 figure in early Asian session trade.

Despite the widespread selling of the greenback, tonight’s price action has all the earmarks of a short squeeze, as specs try shake weak dollar longs from the market. Ultimately there was nothing radically different in Ms. Yellen’s words yesterday and the US economy continues to outperform the rest of the G-7 universe. Indeed after a weak first half growth is expected to pick up led by steady wage gains as labor conditions continue to improve. Therefore barring any exogenous shock to the global financial system the Fed is likely to move on rates before the year end, although the September start date appears to be less likely after yesterday’s presser.

Today’s US CPI numbers and weekly jobless claims will give the market further food for thought, but with the short squeeze in full force its entirely possible that dollar shorts could try to run the 1.1500 level in EUR/USD and the 1.6000 in GBP/USD before the end of the week.

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