THE BIG PICTURE The dollar recovered across the board yesterday, with only the NOK gaining slightly vs the US currency. The shift in sentiment was particularly impressive given that Friday’s Commitment of Traders (COT) report had shown that speculative traders switched to being long EUR last week after five weeks of being short. There was no particular trigger for the rally. Market reports attributed it to enthusiasm ahead of today’s retail sales figures for July. The headline figure is expected to be up 0.3% mom, a deceleration from +0.4% mom in Jun, but the so-called “control group” (excluding petrol stations, auto dealers and building materials) is forecast to power ahead at +0.4% mom vs only +0.1% the previous month. That figure might reassure investors about the health of the US economy and help to confirm that the Fed is likely to begin tapering off its quantitative easing at its September meeting. Also, the NFIB small business optimism survey is forecast to rise to 94.5 from 93.5. The strength of the dollar vs all three commodity currencies was particularly impressive given the continued recovery in sentiment towards China. Gold rallied strongly, South African stocks hit a new high for the year and Chinese ETFs in the US gained as much as 3%. Yet the AUD was the second-worst performing G10 currency vs USD (after JPY). What all of this suggests to me is that in fact sentiment towards the dollar has not disintegrated anywhere near as much as I had thought. If the US currency can gain in these conditions, then there is still widespread demand for it. It’s way too early to throw in the towel on the long dollar trade. In fact, this pullback could be a good opportunity for dollar bulls to get back in. Other indicators out today include the ZEW current situations index for Germany, which is expected to rise to 12.0 from 10.6, with the expectations index expected to rise to 39.9 from 36.3. An improvement in the German indices would tend to confirm that the Eurozone economy is bottoming out and could help to keep EUR/USD near the top of its trading range. Similarly, EU industrial production is forecast to be up 0.9% mom in June, a turnaround from -0.3% mom in May, with the yoy rate of change finally breaking into positive territory at +0.3% vs a 1.3% yoy decline in the previous month. This figure would corobborate the message of the ZEW index about the Eurozone economy bottoming, something that we should learn more about tomorrow when the Eurozone Q2 GDP figure is released. Meanwhile, UK CPI for July is forecast to be flat mom, which would bring the yoy rate of change down slightly to 2.8% from 2.9%. That could weaken GBP a bit.
Posted on: Thu, 15 Aug 2013 08:10:30 +0000
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