FX market outlook

FX market outlook

US dollar recovery challenged by weak data, Trump actions.

The US dollar traded mostly sideways on Monday, as an attempt to drive it lower in mid-Asian session failed.  Still the dollar had trouble fully overcoming headwinds like Friday’s weak GDP numbers as well as Trump’s latest controversial executive order that banned immigration from seven Muslim-majority countries in the Middle East and Africa.

The dollar index traded as low as 100.17 before coming back to 100.40 in late Asian trading.  Friday’s close was at 100.56.  On Friday, data showed that the US economy grew less-than-expected during the final quarter of the year as the annualized quarter-on-quarter rate was 1.9% versus the 2.2% estimate and 3.5% the previous quarter.  Concerning the new US administration, a tumultuous first week in office was rounded up with a controversial travel ban from certain Muslim countries, as the new President seemed eager to quickly fulfill his campaign promises to curb free trade and immigration.  During the same week, expectations of fiscal stimulus and deregulation helped the Dow Jones average close above the 20,000 mark for the first time in its history.

Trading in Asia was subdued as many countries were closed for the Lunar New Year holiday.  Among them were China, Hong Kong, Singapore, Malaysia, South Korea, Thailand, Vietnam and Taiwan.  China will reopen on Friday and Hong Kong on Wednesday.

In today’s economic data, Japanese retail sales for December came in below expectations at 0.6% instead of 1.3% forecast by analysts.  The Japanese yen benefitted from a slightly risk-off tone in global equities to push the dollar below the 115 mark and trade around 114.68.  The Nikkei closed down about half a percent.  The euro was holding 1.07 against the dollar by trading at 1.0706, having traded as high as 1.0739 earlier.

The week ahead is promising to be quite eventful, given that no less than three major central banks are meeting.  The Bank of Japan meeting started today and will end tomorrow, the Federal Reserve will announce its policy statement on Wednesday while the Bank of England decision and Governor Carney’s press conference is scheduled for Thursday.  The week will end with the all-important US employment report for January.

Looking ahead to the remainder of Monday, the European Commission will publish various indicators on consumer and business confidence in the Eurozone during January, while later on preliminary German inflation figures will also come out.  Personal income and spending, the PCE price index and pending home sales will be released during the US session.