All Data Points to Further Dollar Losses

So, another bad week ends for the greenback and thanks to plenty of worse than expected economic indicators coming out of US, there was little for dollar bulls to smile about. As the week started, the EUR/USD was hovering around a 1.30 level, still within its range of 1.2865-1.3060. Another important event for the dollar was Mr. Bernanke’s speech in front of House and Senate, which was long awaited by traders for some hints as to what the future plans of the Fed will be regarding rates.

As lately we have had better than expected news from Housing and Payrolls, there was speculation around the desks that Bernanke would be hawkish and signal hikes rather than cuts in the interest rates. However, the first negative data, which was in the form of the Trade Balance, was much wider than expected, printing 61.2 instead of 59.9 forecasted.

Together with a dovish Bernanke, EUR/USD finally broke its range and skyrocketed upwards towards 1.31. The speech didn’t deliver that many things the market didn’t already know, however as there was anticipation for hawkish comments, the lack of it caught the market by surprise and decided to sell the dollar, making new monthly highs for the EUR/USD.

As the week went on, more bad data came out of US with Retail Sales coming lower than expected, but worst of all was the TICS data which showed a poor number of 15B instead of 70B. As it was now clear that this number cannot cover the Trade Balance of 61.2B, the dollar was sold off all across the board. This was assisted by the negative sentiment after Bernanke’s speech and the PPI numbers coming out as expected.

As the new week starts the question is will the dollar continue to drop further? As the two main events are the CPI data coming out of the US and the FOMC minutes, the market will be looking closely for signs of slowing in the economy and further moves by the Fed. Another important piece of news this week is the rate decision from the BOJ, which is especially important for those with yen curry trades. The feelings are mixed thanks to mixed signals coming from the Bank combined with mixed data.

A better GDP from Japan last week, boosted analyst’s expectation with many now speculating a rate hike rather an unchanged result. There is an existing risk in all yen related pairs of unwind in curry trades, as investors will be looking to liquidate their positions ahead of the announcement. However if the BOJ leaves rates unchanged then we shall be looking for further sell off in the yen.

With US markets closed on Monday and not a lot of data till Wednesday we are expecting the volatility to remain low and pairs to be range trading. What will be the catalyst for further trading action will be the CPI numbers, as more speculation arises that they will be lower than expected, which will be another hint of the Fed easing rates in the near future, rather than hiking again. We expect the FOMC minutes to give us more idea of future moves, however we won’t be surprised if it turns out as a non-event with traders being none the wiser.

The other thing to watch is GBP/USD which really sold off due to worse than expected inflation numbers and further negative rhetoric from BOE officials. What will be interesting to watch are the BOE minutes which will give us more idea as how the voting was and what impact it had on their decision.

So, enjoy the quiet start, but brace yourselves for some trading action in the latter part of the week, with much important data coming out for all economies. Keep a special watch on how the dollar related pairs will react and if EUR/USD keeps its upward trend toward 1.33.