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Dollar Starts Week Mixed as Taper Speculation Becomes Data-Centric

Dollar Starts Week Mixed as Taper Speculation Becomes Data-Centric

Christopher Vecchio, CFA, Senior Strategist










(vs USD)








Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.04% (+0.47%prior 5-days)


After a strong midweek performance, the US Dollar slumped on Friday and its woes have continued into the last week of August. Sparked by a slew of weak housing figures on Friday, the buck’s downturn has begun at a curious time for markets, given the fact that last week produced not only the July FOMC Minutes but also the Jackson Hole Economic Policy Symposium.

Indeed, there is one main takeaway from the fireworks (or lack thereof) last week: between now and September 19, the next FOMC meeting, only US economic data will drive market sentiment. Dovish or hawkish, the commentary was more or less the same from Fed officials this past week: ‘September would be an appropriate time to taper if the economic data is strong.’

The first such opportunity to see if US data is moving in the right direction is today in the form of the Durable Goods Orders report for July. Durable goods are products with lifespans of three years or longer (appliances, automobiles, etc), and therefore the report is viewed as a proxy to consumer confidence and credit.

In light of the recent upswing in financing costs, purchases that would be aided by lower rates have taken a hit in recent months (as seen on Friday, housing). We find that the July report should show no difference from the general trend. The weakness seen in the US Dollar to start the week reflects positioning for a weaker report; and a beat here would go a long way to ease sentiment and put favor back in the buck’s court.

EURUSD 5-minute Chart: August 26, 2013 Intraday

Dollar_Starts_Week_Mixed_as_Taper_Speculation_Becomes_Data-Centric_body_Picture_1.png, Dollar Starts Week Mixed as Taper Speculation Becomes Data-Centric

Taking a look at European credit, higher peripheral yields and lower core yields illustrates a slight risk-off sentiment in the market, which has led to a modest response by the Euro. The Italian 2-year note yield has increased to 1.913% (+6.0-bps) while the Spanish 2-year note yield has increased to 1.709% (+0.8-bps). Likewise, the Italian 10-year note yield has increased to 4.380% (+5.9-bps) while the Spanish 10-year note yield has increased to 4.452% (+1.2-bps); higher yields imply lower prices.

Read more: Pressure on Yen Could Rise if Inflation Slows amid Weaker Growth


Dollar_Starts_Week_Mixed_as_Taper_Speculation_Becomes_Data-Centric_body_x0000_i1028.png, Dollar Starts Week Mixed as Taper Speculation Becomes Data-Centric

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Want the forecasts to appear right on your charts? Download the DailyFX News App.

--- Written by Christopher Vecchio, Currency Analyst

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