Dollar Holds Firm But How is the US Consumer?

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Market Drivers February 15, 2019
China price data shows a decline
UK Retail Sales beats
Nikkei -1.13% Dax -0.26%
Oil $54/bbl
Gold $1157/oz.

Europe and Asia:
CNY CPI 1.7% vs. 1.9%
GBP UK Retail Sales 1.2 vs. 0.2%

North America:
USD Empire Manufacturing 8:30
USD U of M 10:00

Currencies were in a holding pattern on the final trading day of the week with majors contained to 20 pip ranges in Asian and European sessions as traders were content to tread water awaiting fresh news on the US-China trade negotiations.

The latest on that front is that talks will continue in Washington DC next week and while progress has been made, it is not yet enough to sign a memorandum of understanding and allow for Trump and Xi to have a formal meeting announcing a deal.

The dollar was generally bid except for the yen as equity flows in Asia and Europe remained slightly negative. Today Trump is expected to sign a budget deal but also announce a possible emergency measure to fund the wall which will no doubt invoke a legal challenge from Congress and could add some mild risk tensions to the market.

In UK the Retail Sales data surprised to the upside with final reading coming in 1.2% vs 0.2% eyed as spending on food and clothing post-Christmas helped lift the number. Although business sentiment in the UK has deteriorated rapidly, consumer demand has held up remarkably well and suggests that if any sort of a compromise deal can be enacted cable should see a massive inflow of capital. Pound recouped the 1.2800 figure in post news trade and could now push towards 1.2900 as the day proceeds.

In North America the calendar is light but the focus will shift to the U of M consumer survey especially in light of the horrid Retail Sale numbers yesterday. The market is looking for a bounce of 93 from prior reading of 91.2 but if the survey posts the second month of decline it would suggest that consumer sentiment has taken a big hit in the US government shutdown fight and that the retail sales data may not have been a one-off fluke. USDJPY has been heavy all night but found support at 110.20 level in overnight trade. However, if the U of M prints badly the shorts could send it for a retest of 110.00 before the close of trade for the week.

Boris Schlossberg
Managing Director

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