We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bullish
USD/JPY
Mixed
Gold
Bullish
Oil - US Crude
Mixed
Bitcoin
Bearish
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • Big news over the past couple of hours: - Norge’s Bank raises rates to 1.50% - #BOE says if #brexit uncertainty persist, likely to be weaker inflation - #ECB delivers 3.4 billion euros in a new round of long-term loans to banks (BBG)
  • Commodities Update: As of 20:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: 0.84% Gold: 0.31% Silver: 0.17% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/cCtIGXgMjw
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.67%, while traders in France 40 are at opposite extremes with 85.59%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/L97bbhVulc
  • $EURUSD Daily Pivot Points: S3: 1.0927 S2: 1.0982 S1: 1.1007 R1: 1.1063 R2: 1.1094 R3: 1.1149 https://www.dailyfx.com/pivot-points?ref=SubNav?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • With the EU-UK #Brexit negotiations ongoing and no certain path to an amicable resolution, the @bankofengland has warned that it may cut rates soon. Where is $GBUSD heading? Get your market update from @CVecchioFX here: https://t.co/CKPGqolOAR https://t.co/E7dGEiKVYP
  • US Equities Update (Thursday Close): $DJI -0.19% $SPX -0.04% $NDX +0.17% $RTY -0.40% $VIX +0.79%
  • As I listen to music while analyzing, I remind myself that: SRV > Jimi #ControversialViews
  • Indices Update: As of 20:00, these are your best and worst performers based on the London trading schedule: Wall Street: 0.00% US 500: 0.00% Germany 30: -0.15% France 40: -0.16% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/2Z0eNA1wrH
  • What is the biggest obstacle a trader needs to overcome to be successful? Find out from @JWagnerFXTrader here: https://t.co/Etyg8e0H6b #FOMOintrading https://t.co/up9B5DLg37
  • The New York #Fed trading desk will continue repo operations for fourth consecutive day $DXY
US Dollar Needs Optimism from Fed as Q2 Data Starts to Slip

US Dollar Needs Optimism from Fed as Q2 Data Starts to Slip

2014-06-14 16:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
Share:
US Dollar Needs Optimism from Fed as Q2 Data Starts to Slip

Fundamental Forecast for Dollar: Neutral

- USDOLLAR broke down to and has started to cut through significant support this week.

- See the DailyFX US Dollar Economic Calendar for the following week.

- Have a bullish (or bearish) bias on the US Dollar, but don’t know which pair to use? Use a US Dollar currency basket.

It’s safe to say that 2014 hasn’t been the bullish US Dollar environment everyone envisioned. Even in the week following a May US Nonfarm Payrolls report that showed headline jobs growth over +200K for the four consecutive month (the first such streak since October 1999 to January 2000), the greenback was one of the worst performing currencies. For perspective, the US Dollar’s outperformance against the Euro and the Swiss Franc only comes after the ECB’s unveiled massive easing steps.

The US Dollar’s position is a precarious one. While the yield environment has become somewhat more supportive, the data picture has not. The US yield curve has steepened slightly in the belly of the yield curve (3Y-7Y) over the past week and month, but it’s important to point out that the longer-term interest rates (10Y-30Y) are still rather suppressed. This is important because long-term interest rates are more sensitive to Fed rate changes than short-term interest rates; the market isn’t exactly pricing in a Fed rate hike anytime soon.

The only slightly-positive yield environment backing the US Dollar is undercut by the weak economic growth environment currently persisting. While there have been tepid signs of a Q2 economic snapback (automobile sales, housing starts, jobless claims, and retail sales), the degree to which the data has rebounded is disappointing. Using the Citi Economic Surprise Index as a proxy for data momentum, the recent lull is apparent. The index reached a yearly low on April 7 at -45.9 then rebounded to 3.3 on May 20, but has since fallen back to -19.5 as of Friday.

Thus between the data momentum being lost and the yield environment in a not-so-favorable shape – lower longer-term interest rates could also signal investors’ expectations about inflation and growth, which are dropping if yields are an indicator – the US Dollar really needs the upcoming June Federal Reserve policy meeting this week to stand and deliver.

The best case scenario for the US Dollar is that the FOMC looks to the 6.3% unemployment rate, which is currently sitting at the top of its year-end prediction range, and determines that, based on the labor market reaching its natural rate sooner than later, it will need to raise interest rates sooner than later, i.e., Q2’15 (currently priced for Q3/Q4’15).

In fact, a great deal of Fed optimism will be required in order to drum up support for the US Dollar – beyond the unemployment rate, there is only scant evidence that inflation will soon achieve the Fed’s threshold at 2%consistenly, which core CPI has been at below for nearly two years (the last time there were two consecutive months of core CPI at +2.0% was June-July 2012). Wage growth remains only modest per the most recent labor market report, and even progress towards fiscal policy action – a minimum wage hike – seems dead in the water during a midterm election year.

Truly, there’s very little good going on for the US Dollar right now, even from a positioning perspective. Overnight index swaps are only pricing in +17.0-bps priced into the USD over the next 12-months, whereas that figure was as high as +39.0-bps on March 17. The retail forex trading crowd remains stubbornly long the US Dollar, especially versus the British Pound (crowd net-short GBPUSD since July 2013), which serves as a contrarian indicator for expectations (i.e., USD weakness). With the USDOLLAR Index technical picture now weakening, the US Dollar needs an optimistic FOMC this week – or else. –CV

To receive reports from this analyst, sign up for Christopher’s distribution list.

provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.