Dollar against all Calm down before the storm

No US dollar retracement was observed last week. It looked like the dollar was headed for a correction on Thursday which didn’t really happen, and that was not due to American statistics, but mainly due to the euro consolidation. The ECB President Mario Draghi announced the measures of the monetary policy easing in the EU, which provided support for the single currency rate. The asset purchase program LTRO is to be launched this year, but its volume was not disclosed and can be relatively small.

In general, almost the entire past week the greenback was trading sideways, which ended with a strong growth on Friday. The US labor market data were released on Friday. The report was expected to be favorable, but the actual figures exceeded the most optimistic forecasts. Non-Farm Payrolls in September amounted to 248 thousand. Unemployment rate dropped to 5.9%, the lowest level since July 2008. This positive information increases considerably the likelihood of a Fed rate hike in the middle of the next year. Moreover, many market participants expect that yields on corporate bonds in the United States may rise even earlier. All these factors contribute to an increase in dollar demand and the exchange rate. Last week the dollar index rose for the twelfth consecutive time, the first time in more than forty years. Since the beginning of the year it grew 8%, which is the largest increase in nine years.

Very few indicators of the US economy are to be released this week. We assume that their tentative forecasts are neutral. The hearings of the September Fed meeting will be released on Wednesday. We expect wholesale inventories and Initial Claims to be published on Thursday; and Import and Export Prices – on Friday. In our opinion, exchange rates can be affected by the statements of the Fed regional heads. They are expected to give speeches almost every day this week. The ECB President Mario Draghi will give his speech on Thursday, and the monthly ECB report will be released the same day. Perhaps, these are the most significant economic events expected in the EU. Friday can become an important day for commodity futures, when many indicators of the Chinese economy will be published. In our opinion, credit statistics that are expected to be positive may be of a particular interest and provide support for prices.

See also: