The US dollar has slumped for the past three day. It began with weak retail sales, continue with soft industrial production and on Thursday, housing starts rose just 2% compared to 16% expected. That didn't immediately send the dollar lower but after a mediocre Philly Fed, which included new orders falling to the lowest since May 2013, the dollar began to list.
Fed talk was rampant but it was generally supportive. The theory that a small bout of seasonal weakness is passing through the economy is omnipresent and was repeated by Fischer and Lockhart – two Fed members that often represent the core. Both also expressed some level of discomfort with the strong dollar but it only added the slightest bid to the dollar.
For the next dollar move, look to the data. Increasingly lower-tier data is weighing on the dollar but one or two better numbers – CPI and U Mich sentiment are due Friday – could quickly remind the market why it fell so in love with the dollar to begin with.A spot to keep an especially close eye on is USD/JPY. It's held up well despite the recent round of dollar selling and remains just 2.6% from a multi-year high. Thursday's low also didn't breach the previous day's low as signs of strong support at 118.75 emerge. If that breaks, it may set off another round of weakness but dollar bulls won't stay quiet forever and when it turns, that pair is a solid spot for optimism.
|Housing Starts (MAR) (m/m)|
|0.926M||1.040M||0.908M||Apr 16 12:30|
|Philadelphia Fed Manufacturing Survey (APR)|
|7.5||6.0||5.0||Apr 16 14:00|
The fundamentals, technicals and everything else aligned for the Canadian dollar on Wednesday in a massive rally. USD/CAD fell more than 2.5 cents after the BOC as oil climbed nearly 6%, the US dollar lagged on soft data. The Australian jobs report is up later. EURUSD long trade was adeed to the Premium Trades right after the Draghi conference and is in progress. Our USDCAD short from last week has deepened in the money as is NZDUSD. EURGBP, EURAUD and GBPAUD also in progress.
Newsflow was intense on Wednesday. Here's a quick recap:
1) Draghi brushed aside talk about shrinking the QE program but the press conference wasn't a big market mover. 2) US industrial production -0.6% vs -0.3% exp along with Empire Fed -1.19 vs +7.17 exp caused some significant USD selling 3) Beige Book wasn't as optimistic as many thought it would be 4) Bullard: now may be a good time to start hiking 5) Fonterra milk auction -3.6%
The big market mover of the day was the Bank of Canada. Ahead of the decision there was more talk about a surprise cut, especially after a very weak manufacturing sales report earlier in the day. USD/CAD ramped up above 1.2550 just ahead of the decision.
Instead, the BOC backed away from a dovish bias, saying risk to inflation are now roughly balanced. They were expected to slash forecasts but 2015 was lowered just two ticks while 2016 was bumped up. In addition, inflation forecasts were raised significantly for Q3 and Q4. In the press conference, Poloz was asked about taking out more insurance and he didn't give any indication a cut is under consideration. If anything, he was more upbeat about the economy once the oil effects subside.
The real kicker came in the oil market as crude prices were boosted by a smaller build than expected in EIA weekly supply data. That sent crude above a quadruple top at $54.00/20 and surging to as high as $56.69 – the highest of 2015 and through the 100-day moving average.
The same kind of breakout occurred in USD/CAD as it plunged below the Feb and March lows down to 1.2290. Both are classic breakouts from consolidation and bode well.
The US dollar was weak across the board and even the Australian dollar got into the act, jumping to 0.7999 from 0.7620 despite more fears about China. The focus will shift to the domestic economy in the hours ahead with the jobs report due at 0030 GMT. The consensus is for 15K jobs but the full/part-time breakdown is always important as well. There have been some extremely choppy readings in this data over the past six months and while the ABS claims it has improved its methodology, the market will be skeptical of any large miss.
|Fed's Lockhart speech|
|Apr 16 17:00|
|FOMC's Mester speech|
|Apr 16 17:10|
|Federal Reserve Bank of Boston President Rosengren Speech|
|Apr 16 17:30|
|Fed's Stanley Fischer speech|
|Apr 16 19:00|
|Industrial Production (MAR)|
|-0.6%||-0.3%||0.1%||Apr 15 13:15|
|Industrial Production (MAR) (y/y)|
|5.6%||6.9%||6.8%||Apr 15 2:00|
|Manufacturing Shipments (FEB) (m/m)|
|-1.7%||0.4%||-3.0%||Apr 15 12:30|
Another day of disappointing US data reports showing industrial production posting its biggest drop since August 2012 at -0.6% and the NY Fed's manufacturing index hitting the lowest level since January 2013. The Canadian dollar soared alongside oil. Full charts & analysis.
|Industrial Production (MAR)|
|-0.6%||-0.3%||0.1%||Apr 15 13:15|
The US dollar is getting increasingly skittish on signs that more than winter alone may not have cooled the economy. On the day, the Canadian dollar was the top performer on an oil rally ahead of the BOC while the US dollar lagged. The focus now shifts to China and a possible rate cut later with GDP data due. In our latest Premium Insights, USDCAD, NZDUSD, EURGBP and EURAUD remain in progress.
Four times a charm? US retail sales disappointed expectations for the fourth consecutive month and it set off a surprisingly large round of US dollar selling. The dollar lost 150 pips against the pound, euro and CAD after the data, which showed a 0.9% rise compared to 1.1% expected.
The control group, which excludes autos, gas and building supplies, rose 0.3% compared to 0.5% expected along with a two-tick negative revision the prior. Alone, there wasn't anything in the report to spark significant economic worries but it may be a matter of the tide slowly turning against the US economy.
The idea that could weather stifled the economy in Q1 is omnipresent in economic conversations and treated like it's nearly as a fact but March isn't the coldest month and the numbers have been soft, leaving some traders skeptical. In addition, the dollar is a crowded trade and that led to an extra-large squeeze. After a soft non-farm payrolls report and a similar reaction, the US dollar recovered in the days ahead as the focus shifted to just how weak rival economies are faring.
Focus on oil in the day ahead. Prices moved higher late in the day on a smaller build in API supplies and talk of cutting OPEC supply from Iran. The technicals are the bigger story as prices approach a tough zone of resistance just above $54 that has held in four previous challenges. A squeeze higher in oil and a wait-and-see approach from the BOC could be a powerful combination for USD/CAD shorts.
But in the shorter term, all the talk with be about China with Q1 GDP due at 0200 GMT. The consensus is 7.0% but there is plenty of skepticism. Even the IMF forecast just 6.8% GDP growth in its latest forecast. March IP and retail sales are due at the same time.
Trade numbers this week were very soft and that may show a slowing economy in the bigger picture but that may be masked by a stronger trade surplus as imports tumble. There is talk that the PBOC could cut rates as soon as today if growth falters.
|Retail Sales (MAR) (m/m)|
|0.9%||1.1%||-0.5%||Apr 14 12:30|
|Retail Sales (ex. Autos) (MAR) (m/m)|
|0.4%||0.7%||0.0%||Apr 14 12:30|
|Retail Sales (MAR) (y/y)|
|10.9%||10.7%||Apr 15 2:00|
A subtle hint at an undervalued yen set off a violent drop in USD/JPY to start the week. We look at Japan's history of jawboning and why the calendar might be the catalyst. Australian business confidence and a ruling on Japan's nuclear industry could be drivers later. EURAUD, USDCAD, NZDUSD and EURGBP trades are in progress.
The pound was the top performer to begin the week on polls showing the Conservatives gaining momentum while the Australian dollar lagged on worries about Chinese trade and iron ore woes. But the big move in New York trading was a sharp drop in USD/JPY to 119.70 from 120.40.
The drop came after Abe adviser Koichi Hamada said USD/JPY at 105 is appropriate given purchasing power parity. The pair later rebounded to wipe out the losses but then sagged back near 120.00.
It was a strange comment but shouldn't come as a major surprise. Hamada hasn't been a strong advocate for yen weakness and USDJPY purchasing parity is actually closer to 89 but for a trader, that's an almost meaningless metric. Currencies routinely deviate from PPP for years and even decades.
What isn't a surprise is the timing of the comments as the arrive just days ahead of the IMF and World Bank Spring meetings, which begin April 17. The previous meeting was in October and also included a USD/JPY dip after which came in the BoJ's latest QE increase.
Japanese officials are sensitive to claims about manipulation and a seemingly-innocuous comment from Hamada could give them some cover in case of criticism. For traders, it's also a demonstration about how timing USD/JPY longs have grown.
Looking ahead, a focus will remain on the sagging Australian dollar with NAB business confidence for March due at 0130 GMT. The prior reading was 0 and it's not generally a market mover but AUD is in a delicate place.
Another spot to watch for volatility is in USDJPY at 0500 GMT. That's when Japanese judges are set to decide on restarting two nuclear reactors. Speculation leans toward an injunction but if the courts clear the way for a restart it would signal a much-improved trade balance.
|Trade Balance (MAR)|
|$3.08B||$45.35B||$60.60B||Apr 13 2:00|
|NBNZ Business Confidence|
|23||24||Apr 13 22:00|