USDOLLAR Index Looks to CPI, FOMC Minutes to Break Range
- August is typically a bad month for risk and a good month for the US Dollar - see the August forex seasonality report.
The ides of August are upon us, meaning we've gotten through the 'dog days of summer.' Yet while the lack of volatility in markets may be forgotten now as market participants decamp for holiday, it is likely to linger nonetheless barring explicit catalysts. Fortunately for those market participants still around, the next two days brings about significant event risk from the United States, in the form of the July Consumer Price Index and the July FOMC minutes.
Absent economic drivers, it seems very likely that the US Dollar (via the USDOLLAR Index) will remain rangebound ahead of the Jackson Hole Economic Policy Symposium, in particular, Fed Chair Janet Yellen's heralded speech on Friday, August 26.
Given the backdrop of a weak Q2'16 US GDP report, softening expectations for Q3'16 US GDP (the Atlanta Fed's GDPNow growth forecast is down to +3.5% from +3.8% over the past two weeks), and the contentious US presidential election cycle, it seems highly unlikely that the Fed will be raising rates in September. Putting this view in context of individual components of the USDOLLAR Index - EUR/USD and USD/JPY in particular - and there stands good reason to sell US Dollar rallies over the next few weeks.
--- Written by Christopher Vecchio, Currency Strategist
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