US Dollar Pushed Lower, but Do FOMC Minutes Really Trump Dudley?

<br /> US Dollar Pushed Lower, but Do FOMC Minutes Really Trump Dudley? – Marc to Market<br />


It is not a good day for the US dollar.  It is being sold
across the board.  The seemingly dovish FOMC minutes released late
yesterday appears to have gotten the ball rolling.  The takeaway for many
was that any officials wanted more time to assess the data at the July meeting.
The question is
whether two months more data is sufficient.
  The market did not have much
confidence (less than one in four) chance of a hike in September.  
Dudley, like other Fed officials, have indicated that a hike in September was
possible.  This is the meaning of
the Fed’s data dependency;  meetings are live.    The
FOMC minutes make it seem that the bar to a move in September is high, but
Dudley’s comments about the market’s complacency is not just about next month’s
meeting.   It is also about the December meeting.  
The dollar
bears are pushing through an open door.
  The greenback was technically week
and the FOMC minutes gave little reason to resist.  The strongest major
currency today is sterling.  Following yesterday’s stronger than expected
employment data, today the UK reported a robust retail sales report for July.
 The median guesstimate in the post-referendum environment, which had
already seen soft BRC sales figures, was for a 0.9% decline in UK retail sales.
Instead, they
jumped 1.5% excluding petrol and 1.4% with it.
  It is the strongest report in five
months.  It appears hot weather boosted demand for clothing and footwear,
while tourists, drawn by sterling’s weakness scooped up watches and jewelry.
 If one did not know of Brexit, the combination of low interest rates, low
inflation/prices, and robust jobs market would seem rather impressive.  
On Monday, sterling posted its lowest close in around 15
years (~$1.2880).
  Today it is knocking on its highest
level in two weeks just below $1.3180.  A move above there could spur an
advance toward $1.3300-$1.3350.  Not only
is sterling stronger, but 10-year Gilts are firmer, and the FTSE 250 is up
0.5%, which is the strongest gain this week.  The euro is off 0.75%
against sterling to test the GBP0.8580 area.  A break could spur a move
toward GBP0.8535 and GBP0.8480.  
The dollar was
sold down to JPY99.65, which is just above the week’s low near JPY99.55. 
 It has recovered to almost JPY100.50 in the European
morning, as the risk appetites return.  The high in the US afternoon
yesterday, before the FOMC minutes was around JPY100.65.  This may be a sufficient cap today.  The
dollar has fallen in five of the past six sessions against the yen and in four
consecutive sessions.   
Due to seasonal
considerations, Japan’s July trade balance typically deteriorates from June.
  This pattern held, but Japan still
reported a larger than expected trade surplus of JPY513.5 bln (Bloomberg median
was JPY273.2 bln).  However, the details were troubling.  Exports
fell 14%, which was in line with the Reuters survey, and is the most since
2009.  It is the tenth month of falling (year-over-year) exports.
 Imports slumped 24.7%, which was also a bit more than expected.
 Exports to its biggest trading partner, China, fell 12.7% after a 10%
drop in the year through June.  Exports to the US fell 11.8%, nearly twice
the June pace.  
The Australian
dollar has risen in ten of the past eleven weeks.
  Today’s advance is offsetting
yesterday’s decline, leaving it up around 0.5% for the week.  On balance
the jobs employment report was constructive.  It creates twice as many
jobs (26.2k) that the market had anticipated. 
However, it lost a few more
full-time jobs than it gained last month (-45.4k vs. +44k).  This disappointment was offset by the unexpected
decline in unemployment (5.7% vs. 5.8%) despite the unchanged participation
The Aussie
bounced a little above $0.7720 but stopped shy of the week’s high near $0.7750,
which is also just below last week’s high.
  Provided it holds above $0.7680, it
may make another run at the highs in North America.  
Eurozone data
was uninspiring.
  The June seasonally adjusted current
account surplus narrowed to 28.1 bln euros from 31.8 bln.  Construction
output in June was flat, and May’s 0.5%
decline was revised to flat.  The Q2 data is too dated to be of much
significance for traders now.  The July CPI fell 0.6% not 0.5% as
initially reported, but the year-over-year pace was unchanged at 02% from the
preliminary estimate.  The core rate was steady at 0.9%.  
The euro made a
marginal new high near $1.1330, which is the highest level since the UK
 We have suggested a $1.1350 target,
but the technical evidence warns that this may be overshot.  Above thee,
we suggest potential toward the $1.1425-$1.1450 area.  
The US economic
calendar is light with weekly jobless claims and the August Philly Fed survey
 The real highlight may be Dudley’s
press conference, and Q&A around 10
am ET.  We do not expect Dudley to back away from his comments made a
couple of day ago.  In our work, we tend to give more credence to Dudley
comments, and the Fed’s leadership more broadly, than the FOMC minutes, which
we think dilutes the signal with a cacophony of voices.    Yellen
speaks at Jackson Hole at the end of next week.  Our guess is that she is
closer to Dudley’s assessment than a dovish read of the minutes would suggest.
Today is the
ninth consecutive session that the US dollar is falling against the Canadian
 Indeed the greenback has only moved
higher in one of the past 13 sessions.
 It is testing support near CAD1.2800 today.  The next chart-based
support is seen near CAD1.2765.  A
break could spur another big figure more toward CAD1.2650. Today’s
securities transaction report is not a market-mover.  The weaker US dollar
environment and higher oil prices appear to be the main drivers.  


US Dollar Pushed Lower, but Do FOMC Minutes Really Trump Dudley?
US Dollar Pushed Lower, but Do FOMC Minutes Really Trump Dudley?

Reviewed by Marc Chandler

August 18, 2016

Rating: 5

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