US dollar sentiment improves with positive data

Consumer prices, including core consumer prices which don’t take into account volatile energy and food prices, edged higher on month in April 0.2% and 0.1% respectively resuming growth after declining in March 0.3% and 0.1%. And while headline inflation slipped two tenth percentage points to 2.2% in April, it is still above the Fed’s target rate of 2% and most likely will stay above the threshold that the central bank uses for deciding whether to raise rates or not. Retail sales also rose in April 0.4% after upwardly revised 0.1% gain in March, as did the consumer confidence for May by the University of Michigan. The industrial production report results concluded the batch of positive data with the growth in industrial production accelerating to 1% on month in April thanks to growth in manufacturing production. The negative data came from building permits and housing starts reports which showed declines in April for both indicators, but these data are more volatile in general. In light of positive data it can be expected that Federal Reserve will keep on track of gradual rate hikes as it indicated in its recent statement. Investors increased the dollar bullish. As is evident from the Sentiment table, sentiment deteriorated for all major currencies except for euro and British Pound. And the euro and Australian dollar remain the two major currencies held net long against the US dollar.

The euro sentiment improved as data pointed to continued improvement in the euro-zone economy: euro-zone services sector accelerated the expansion as the final Markit euro-zone Services PMI rose to 56.4 in April, above the 56 reading in the previous month, the strongest expansion in services activities since April of 2011. And while the growth in retail sales slowed to 0.3% in April from 0.5% in March, the trade balance of Germany, euro-zones biggest economy, jumped to 25.4 billion euros from 20 billion in February pointing to improving external demand. The net long euro position rose $2.16bn to $5.21bn. Investors built the gross longs and covered shorts by 8653 and 6552 contracts respectively. The British Pound sentiment improved despite widening of the balance of trade deficit and lower industrial production in March while the Bank of England held the policy unchanged. The net short position in British Pound narrowed $1.12bn to $2.66bn as investors increased the gross longs and cut shorts by 3459 and 10344 contracts respectively. The bearish Japanese yen sentiment intensified despite the current account surplus rising in March to 2.91 trillion yen from 2814 trillion in February, with foreign exchange reserve also rising in April. The net short position in yen widened significantly by $2.65bn to $6.63bn. Investors cut the gross longs and built shorts by 672 and 23029 contracts respectively.

The Canadian dollar sentiment continued to deteriorate as building permits fell in March 5.8% on month and housing price gains slowed in March. The net short Canadian dollar position widened $0.9bn to $7.2bn. Investors cut the gross longs and built shorts. The bullish Australian dollar sentiment moderated as the net longs fell by $1.4bn to $0.47bn. Investors cut the gross longs and built dramatically shorts. The sentiment toward the Swiss franc deteriorated as the the net shorts widened by $0.8bn to $2.68bn. Investors reduced the gross longs and increased shorts.