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Market Analysis

Fundamental Analysis: Dollar on the Rise ahead of Retail Data

February 06, 2019
BY Michael Stark

An ongoing upward movement has been seen for the dollar over the past few days in a fairly slow period for the world’s most traded currency. Recent factors affecting the dollar positively include rate differentials between the dollar and other majors, and President Trump’s relative restraint in this morning’s speech to Congress. The greenback briefly moved back above the important level of ¥110, and EUR-USD has also traded below its recent key level of $1.14 today. GBP-USD meanwhile broke below $1.30 again yesterday.

Not much data yet but rates still key

Data releases from the USA this week have been few in number so far. The main ones, including Monday’s factory orders and PMI releases, came in somewhat negative, but these were shrugged off by a dollar popular with traders.

Despite some dovishness from the Fed last week, central banks in Europe, Japan and Oceania don’t show any sign of catching up to the USA’s funds rate which stands at 2.25-2.5%. Rates are likely to remain a strong positive fundamental for the dollar for the foreseeable future.

President Trump is always a wildcard, but the State of the Union speech in the early hours of this morning (GMT) did not produce much reaction in the markets. Mr Trump made a series of largely predictable comments criticising the ongoing investigation into alleged Russian ‘meddling’ in 2016’s election.

As expected the president also encouraged Congress, again, to back his plan for the border wall, although this time he avoided discussing what he calls a ‘national emergency’ due to the USA’s ‘immigration crisis’. Little mention was made of economic conditions or the funds rate, although Mr Trump did assert once again that the American economy is doing very well. No news in this case has been good news for USD.

Lots of key data today plus Powell’s speech

A large number of American data releases is due today in what will likely be an active afternoon for the dollar against most other currencies. 13.30 GMT is the scheduled release of no less than four important figures: building permits, core durable goods orders, core retail sales and quarterly GDP.

Predictions for many figures are positive. If the consensus estimate of a 0.7-0.8% decline in GDP growth is accurate though, the effect on the dollar would be negative in the short term at least. The expectation of 0.0% for core retail sales would also create some short-term downward pressure if it turns out to be accurate.

Also a point of interest for traders are comments by the Fed’s chairman Jerome Powell tomorrow from midnight GMT. Dr Powell will be answering questions from educators in Washington, D.C., and across the USA over webcast. Markets would probably be quick to react to mentions of the Fed’s plans for rates this year and especially any hints of a change in policy.

More strength expected for the dollar

Although today’s important data is likely to have a significant effect on the dollar in the near future at least, USD’s fundamentals overall are positive. Limited gains for the dollar on the whole are favorable over the next few days against most currencies, unless the economic calendar gives markets a major surprise.

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