Will US Consumer Prop Up the Buck?

Posted on

Market Drivers March 17, 2017
Pound eyes 1.2400
EZ Trade data misses
Nikkei -0.35% Dax -0.09%
Oil $49/bbl
Gold $1228/oz.

Europe and Asia:
EUR Trade Balance 20B vs. 24B eyed

North America:
USD Industrial Production 9:15
USD U of M 9:50

FX markets were quiet on the final trading day of the week, as most of the majors consolidated in narrow ranges after a heavy week of data that saw the dollar lose ground against most of its trading partners.

The dollar selloff that was precipitated by the FOMC press conference on Wednesday, continued into Asian and early European trade, but flows were distinctly muted as most of the price adjustment had already taken place.

Cable continued its winning ways rising to within a pip of the 1.2400 barrier after yesterday’s surprisingly hawkish BOE meeting with one of the members voting for a rate hike. With the threat of Scottish Independence referendum seemingly off the table, the government of PM May has no further barriers to triggering Article 50 and may do so within the next two weeks. We still believe that cable is a sell on rallies trade but the pair could easily squeeze above the 1.2500 figure before encountering any serious resistance.

In Europe meanwhile, the trade balance data missed badly coming at 20B euros versus 24B eyed, but the market shrugged off the news and the pair remained bid for most of the early London trade. The 1.0800 figure is a massive long-term resistance in the pair all the way from last December so any run to test that level today is sure to encounter some sellers, but much of the price action will depend on market’s view towards the greenback.

So far, both currency and fixed income markets remain cautious in their view of the buck with most macro traders still concerned about the state of the US consumer. Despite healthy labor growth, wage growth continues to lag and most importantly consumer demand is subdued as sentiment remains wary. To that end, today’s U of M report could have a particularly powerful impact on trade. The market is looking for a slight uptick to 97 from 96.8 the month prior, but if the data surprises to the upside it could provide the catalyst for the move to 114.00 in USD/JPY. On the other hand, if data misses, USD/JPY is very likely to retest the 113.00 support and could even drift to 112.50 as traders pare their dollar positions ahead of the weekend.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *