Home Fearing the Fed

USD: The Michigan confidence data has the greater potential to impact the dollar. The data has held up relatively well near the highs of the post-crisis period, but post-data reaction on EURUSD has normally been limited to 15 pips or so after the release.

There are more Fed speakers later this evening (Bullard, Plosser).

See how to trade the consumer confidence figure with EUR/USD.

CNY: It is worth noting that there is a lot of data out from China on Monday, including GDP, production and retail sales. Growth numbers of particular importance given renewed concerns of a sustained slowdown. Overnight, finance ministers Jiwei said growth may fall short of government’s 7.5% target this year.

Idea of the Day

This time last week, there was a feeling that FX markets were confident of the main themes for the summer. The Fed had prepared markets for a ‘tapering’ of the monthly pace of asset purchases, which was seen as dollar positive.

Meanwhile both the UK and Eurozone central banks had, in different ways, said in much clearer terms that interest rates were not rising anytime soon, leading to sell-offs of both sterling and the single currency.   At the end of this week, the FX markets feels a lot different, bruised after the dollar sell-off seen on Wednesday in the wake of remarks from Fed Chairman Bernanke and the tone of the minutes to last month’s FOMC meeting.   The road-map does not appear quite as clear.

Underneath it all, the economics still argues the case for a stronger dollar in the coming months, but from here the dollar will need a little more convincing before building a base to move higher, being that much more fearful of another fed curve-ball.

Latest FX News

AUD: Data on home loans showed a 1.8% gain in May, firmer than the 1.2% rise of the previous month. The Aussie traded a touch softer during Asia trade, with AUDUSD having continued the familiar pattern of modest corrections in a broader down-trend.

JPY:  Remaining below the 100 level on USDJPY, with the better tone to stocks not having fed through to a weaker tone the yen, in contrast with the normal inverse relationship between the two.

GBP: Little news flow for sterling, allowing cable to hold below the 1.52 level after the dollar weakness of mid-week. The focus next week will be inflation numbers and even more so, the minutes to the first MPC meeting with new governor Carney in charge.

Further reading:  Forex Analysis: EUR/USD Pulls Back after Sharp Surge

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