US Dollar Rises as Market Focuses on Data, Fed Speech

The United States (US) dollar improved against its major trading partners early Tuesday after another long US holiday weekend as markets focus on a series of key economic data releases this week. Tuesday’s schedule is light, with the New York Fed’s Empire State manufacturing survey and an appearance by Federal Reserve Governor Christopher Waller.

Recall that he delivered the definitive and market-moving “something appears to be giving” speech in late November.

Back then, it concluded that the conflict between strong US growth and disinflation appeared to be resolving in the favour of disinflation, ING FX analyst Chris Turner said in a note, saying the speech provided an important lead indicator for the Fed’s dovish turn at the December FOMC meeting.

“We presume today that he will stick to that same core message of successful disinflation and will not want to get involved in the fine-tuning of discussing a 2024 easing cycle, but not starting in March. We thus see event risk as a benign one – slightly negative for the dollar and positive for risk”.

Highlights Wednesday include retail sales, import and export prices, industrial production data for December and the Fed’s Beige Book economic summary. Weekly jobless claims, home building data for December and the Philadelphia Fed’s manufacturing index are set to be released on Thursday, followed by the preliminary University of Michigan consumer sentiment index for January and existing home sales data for December on Friday.

There are several appearances by Fed officials scheduled for this week before the ‘quiet period’ begins Saturday ahead of the Jan. 30-31 Federal Open Market Committee meeting. A quick summary of foreign exchange activity heading into Tuesday showed that the USDEUR  fell to 1.0892 from 1.0951 at the Monday US close and 1.0947 at the same time Monday morning.

The Eurozone ZEW economic sentiment index fell slightly in January, but the index was still positive and above expectations, data released earlier Tuesday showed. The next European Central Bank meeting is set for Jan. 25.

GBPUSD fell to 1.2645 from 1.2728 at the Monday US close and 1.2732 at the same time Monday morning. UK average earnings growth slowed in November while the unemployment rate held steady, data released overnight showed.

Released at the same time, UK jobless claims rose less than expected in December. The next Bank of England meeting is set for Feb. 1. Bank of England (BoE) Governor Andrew Bailey is set to speak. Nigeria Eurobond Slumps after CBN Resumes OMO Auction

USDJPY rose to 146.7498 from 145.7704 at the Monday US close and 145.7992 at the same time Monday morning. Japanese producer prices rose more than expected in December, but the year-over-year rate still slowed to a flat reading, data released overnight showed.

The next Bank of Japan meeting is scheduled for Jan. 22-23. USDCAD rose to 1.3488 from 1.3429 at the Monday US close and 1.3411 at the same time Monday morning. Canada housing starts data for December are scheduled to be released, followed by consumer price index data for December. The next Bank of Canada meeting is set for Jan. 24.

DXY has clear resistance at 103.10/20 and the case we have outlined above suggests that these levels may well prove the top of the day’s trading range. If we are wrong and Waller has been sent out to push back against aggressive easing expectations (markets price 18bp of a 25bp first cut in March and 158bp of easing this year) then DXY can break resistance and head to the 104.00/25 area multi-day.