FX market outlook

FX market outlook

Posted on Friday, October 14 2016 at 7:59 am GMT+0000

US dollar gains ahead of retail sales, Yellen.


The US dollar managed to strengthen against its peers during today’s Asian session, on anticipation that upcoming data as well as a speech by Fed Chair Janet Yellen will reinforce the case for a December rate hike.

Dollar / yen climbed above the 104 level once more to 104.05, while euro / dollar fell back to 1.1021.  During the previous day, the euro had managed to rebound to around 1.1060 after briefly falling just below the 1.10 mark.

Sterling also gave back some of its previous day’s gains versus the US dollar, as it dropped back to around 1.22.  Statements out of EU Council President Donald Tusk concerning Brexit showed the EU also preparing to take a hard line versus the UK and its aspirations to stop being an EU member while retaining some privileges with respect to Single Market access.  Euro / pound was also above the 90 pence level at 0.9030 after dropping slightly below that level the previous day.

Chinese inflation numbers, in contrast to the previous day’s trade data, were positive for risk sentiment.  Both consumer prices and producer prices beat estimates by a significant margin.  This was good news because the real value of China’s debt load at least would not grow because of deflation and producer price inflation also allowed companies to push up prices and make profits.

The Australian dollar was a clear beneficiary of the better-than-expected Chinese inflation numbers, as it rose close to 0.76 against the US dollar from a low near 0.75 the previous day.  The aussie was last quoted at 0.7596.

Looking ahead, the day’s main data releases will be retail sales for September out of the United States and University of Michigan consumer sentiment (preliminary for October).  Both retail sales and consumer sentiment are expected to be upbeat.  Later in the day and after European markets have closed, Fed Chair Janet Yellen will speak on economic research after the crisis.  Chair Yellen could make some remarks about the economy in her speech.