Dollar Holds its Ground

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Market Drivers August 17, 2017
AU employment mixed
UK Retail Sale bit better
Nikkei -0.14% Dax -0.26%
Oil $46/bbl
Gold $1286/oz.

Europe and Asia:
AUD Labor 27K vs. 20K
GBP UK Retail Sales 0.3% vs. 0.2%

North America:
USD Jobless Claims 8:30
USD Philly Fed 8:30
USD IP 9:15

The dollar rebounded in early European trade after selling off hard yesterday in North American and Asian sessions as traders reacted to dovish FOMC minutes and the turmoil in Washington DC.

The Fed minutes were surprisingly dovish with most officials focusing on the low rate of inflation rather than the steady rate of growth in jobs and wages. Still, odds of another rate hike by December improved to better than 50% as yesterday’s US Retail Sales finally showed the consumer opening up his purse strings.

Yet while the economic landscape in the US appears to relatively sound, the political turmoil in Washington DC is taking its toll. As Trump administration lurches from one scandal to another investor are losing hope that the Administration will be able to pass any legislation in Congress, much less the ambitious tax code overhaul that Mr. Trump promised the voters. Much of the investor enthusiasm has been based on the idea that lower taxes would provide a boost to US growth in 2018, but so far any hopes of fiscal stimulus lie in vain as the Administration appears to be in total disarray.

For now, however, the organic growth of the US economy appears to be good enough to keep the Fed on tightening path and that has put support behind the dollar which held the 109.50 level against the yen and rebounded through the 110.00 figure by morning London dealing. If the pair makes another run at the 111.00 level that would suggest that a double bottom is firmly in place for the pair.

On the other hand, the euro has failed once again to take out the 1.1800 figure and has turned sharply lower probing the 1.1700 level once again. Some analysts suggested that option barriers may have been the cause of the whipsaw in overnight trade, but whatever the reason the pair is displaying all signs of momentum exhaustion as its multi month rally looks ready to correct. Yesterday’s leak that Mario Draghi does not plan any policy shift announcements at next week’s Jackson Hole meeting has become the prime catalyst for profit taking in the pair and if US data proves positive today it could provide the impetus to push EURUSD below 1.1650 as the day proceeds.

Boris Schlossberg
Managing Director

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