It’s the Calm before the Storm for the Dollar

Ahead of a particularly busy week, focus through the day will be on inflation figures out of the Eurozone and housing data out of the U.S.
Bob Mason

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side, limited to June retail sales figures out of Japan.

For the Japanese Yen, retail sales jumped by 1.8% year-on-year, coming in ahead of a forecasted 1.7%, following May’s 0.6% rise. Month-on-month, sales surged by 1.5%, coming in well ahead of a forecasted 0.1%, while reversing most of May’s 1.7% slide.

The larger than expected rise was attributed to increased spending on appliances and fuel and, while the figures will provide the BoJ with some comfort that consumers are gaining confidence in the economy, reflected in the loosening of the purse strings, persistently low inflation continues to be the BoJ’s bugbear.

The Japanese Yen moved from ¥110.936 to ¥110.921 against the Dollar upon release of the figures, before easing to ¥111.06 at the time of writing, down 0.01% for the session.

Elsewhere, the Aussie Dollar was down 0.07% to $0.7395, while the Kiwi Dollar was up 0.13% to $0.6799, the pair seeing mixed fortunes ahead of a data deluge in the week ahead and the FED’s policy decision and forward guidance on a September rate hike.

Softer PCE Price Index figures for the 2nd quarter out of the U.S on Friday contributed to some early support for the pair, while risk off sentiment through the early part of the day ultimately weighed on the Aussie Dollar.

In the equity markets, it was a sea of red through the early part of the day, with the Nikkei leading the way, down 0.64% at the time of writing, with the Hang Seng and ASX200 down 0.6% and by 0.52% respectively, while the CSI300 was down just 0.01%.

Concerns over a continued trade war and the prospects of a hawkish FED will be negatives for the markets at the start of the week, the Asian equity markets brushing aside the softer 2nd quarter inflation figures out of the U.S and focusing on the 4.1% 2nd quarter growth number and the possible impact on FED policy near-term.

The Day Ahead:

For the EUR, economic data through the day is limited to prelim July inflation figures out of Spain and Germany, with forecasts pointing to an uptick in inflationary pressures going into the 3rd quarter, which should provide some support to the EUR, though unlikely to shift sentiment towards ECB policy.

Other stats through the day include economic sentiment and business confidence figures out of the Eurozone that will also provide direction, figures skewed to the negative based on forecasts.

At the time of writing, the EUR was up 0.01% to $1.1658, with today’s inflation figures likely to be the key driver.

For the Pound, there are no material stats scheduled for release out of the UK, leaving the markets to respond to mortgage and consumer lending figures due out later this morning, though focus remains on Super Thursday and whether the BoE will deliver a hawkish or dovish rate hike.

At the time of writing, the Pound was flat at $1.3105, with the Pound having to continue responding to the prospects of negative Brexit news and a possibly hawkish BoE, though progress on Brexit is expected to ultimately influence the BoE and have the final say on the Pound.

Across the Pond, it’s the calm before the storm for the Dollar, with key stats through the day being limited to June pending home sales figures.

While we will expect focus to be on tomorrow and Wednesday’s stats that could ultimately influence the tone of the FOMC Statement, particularly core PCE Price Index figures due out tomorrow, some concern over the U.S housing sector will likely leave the Dollar more sensitive to normal to this afternoon’s data.

Forecasts are Dollar positive, but with existing home sales unexpectedly falling in June, the Dollar could be in for a surprise.

At the time of writing, the Dollar Spot Index was up 0.05% to 94.719, with today’s stats, the outlook towards the week ahead, the FED and noise from the Oval Office in focus, the softer than expected 2nd quarter inflation figures being brushed aside at the start of the week.

For the Loonie, there are no material stats scheduled for release, leaving direction through the day in the hands of NAFTA and general market risk sentiment through the day.

At the time of writing, the Loonie down 0.12% to C$1.3071 against the U.S Dollar.

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