FX market outlook

FX market outlook

US dollar steadies ahead of retail sales.

The US dollar was trying to contain the damage from Trump’s press conference on Wednesday, as the dollar index came back by around 0.5% from the previous day’s low.  There was little fresh news for the market to digest and it seemed movements were still related to Wednesday’s inconclusive Trump press conference.

Euro / dollar dropped back to 1.0625, compared to the previous day’s high of 1.0684, while dollar / yen was nearly a yen higher than its previous day’s low as it traded near 114.75.  Many in the market appeared to ready to buy the dollar on dips as there was strong belief that the greenback’s uptrend would resume following this correction.

In the day’s economic news, Chinese trade numbers for December were on the disappointing side as exports fell more than expected.  There was a smaller beat on the import side, but China’s trade surplus was about 40.8 billion dollars compared to expectations of a 46.5 billion dollars number.  Shrinking exports and the prospect of trade protectionism because of a retreat in globalization could present a challenge for Chinese economic growth, although the slow depreciation in the yuan was helping the economy regain some competitiveness.  The numbers appeared to have little direct market impact.

Sterling also lost ground as it fell once again below the 1.22 mark against the dollar at 1.2163.  The Australian and New Zealand dollars were more resilient as they managed to hold their ground during the US dollar’s rebound.  The aussie was at 0.75 against the greenback while the kiwi was at 0.7118.

In commodities, gold fell back below the $1200 an ounce psychological level due to profit-taking following its strong run the previous days and as the US dollar stabilized.  US crude oil climbed to $53 a barrel as Saudi Arabia announced substantial production cuts after the start of the year and said it would cut more in the near future.

Looking ahead, US retail sales loom large near the start of the US session while they will be followed a little later by University of Michigan preliminary consumer sentiment for January.  A very strong +0.7% month-on-month print is expected for retail sales, while the control component, which is more indicative of the underlying trend, should be at +0.4%.   Producer prices will also be released together with retail sales and given the market’s focus on US inflation prospects, they could also provoke a reaction.  Trading could be less active than usual in the US as Monday is a bank holiday in the country (Martin Luther King Day).