The USD in the Spotlight, with Retail Sales and Inflation in Focus

Following a particularly quiet week on the stats front out of the U.S, there’s finally some stats for the markets to consider this afternoon, with June’s retail sales and inflation figures scheduled for release.

Having heard from the FED Chair mid-week over the need for the FED to maintain a gradual rate path amidst the currently soft inflationary environment, a pickup in inflation could find strong support for the Dollar, though the numbers will likely need to be better than forecast to cause the markets to reconsider the FED’s likely moves through to the end of the year.
While inflation will certainly be of material influence, retail sales figures will also be of particular importance following the disappointing May numbers, which had been released shortly ahead of the FOMC’s decision to lift interest rates last month.

Positive retail sales numbers will provide further evidence that the U.S economy saw a pickup in pace at the end of the 2^nd quarter, with momentum expect0ed to carry through the 3^rd, despite the U.S administration’s continued failure in delivering on growth policies.

At the time of the report, the Dollar Spot Index was down 0.05% at 95.681, easing from gains made through the Asian session, with the markets looking towards today’s economic calendar.

Outside of the retail sales figures, June industrial production figures are also scheduled to be released out of the U.S this afternoon, with FOCM voting member Kaplan also due to speak, though dovish comments are unlikely to have a material impact on the direction of the Dollar, Yellen having already done the damage earlier in the week, and Kaplan’s views on inflation and interest rates having already been of influence on Thursday, Kaplan having joined Kashkari and Brainard on the dovish side of the fence, the Dallas Fed President wanting to see evidence of inflation moving towards the FED’s objective before supporting another move.

Outside of the U.S, there are no material stats scheduled for release out of the UK, with data out of the Eurozone limited to June’s finalized inflation figures for Italy and Eurozone trade figures for May. We don’t expect the finalized inflation figures out of Italy to have too much impact on the EUR, while a widening of the trade surplus will provide support, with the markets all too aware of next week’s ECB monetary policy decision.

At the time of the report, the EUR was up 0.13% at $1.14125 ahead of today’s stats, with monetary policy divergence remaining in favour of the EUR ahead of next week’s ECB interest rate decision and press conference, when the markets will certainly be demanding timelines on when a tapering to the asset purchasing program will begin. Despite divergence in favour of the EUR, we’ve yet to see the EUR make a run towards $1.15 levels, with the markets conscious of today’s U.S data, though any weak figures out of the U.S will likely unshackle the EUR.

The lack of data out of the UK will leave the pound relatively steady, cable yet to have made a real test of $1.30 levels, with some degree of uncertainty over whether weak production, private sector PMI and trade data will cause MPC members to reconsider their stance on monetary policy ahead of next month’s meeting, the confusion coming off the back of better than expected employment figures that had been released earlier in the week.

It’s all about the central banks and the apparent shift in sentiment towards monetary policy, expectations of a shift from neutral positions by both the BoE and the ECB driving volatility and that’s before considering noise from Capitol Hill over Trump Junior, the Dollar holding up pretty well considering the latest revelations.

We will expect the Dollar to bounce back on the release of today’s stats, with inflation and retail sales forecasted to show signs of life, supported by a likely uptick in industrial production, with trade data out of the Eurozone a likely positive for the EUR, though unlikely to have too much impact on sentiment towards ECB monetary policy, inflation having been Draghi’s bugbear, until his latest speech at least.