All was smooth for USD bulls yesterday as they extended their gain on the back of better than expected retail sales and inflation data, with the USD Index, a measure of the strength of the USD against a basket of currencies, making 5 week highs at 101.75 before things turned sour and the USD made an aggressive about turn and a b-line south with the US index dipping below to 99.25. the exact cause of the reversal is not clear as economic data appeared to support a bullish USD, leaving traders scratching their heads as to what caused the aggressive move. Some are speculating that it was Yellen`s follow up testimony which emphasized that economic data would need to support rate hikes while others view profit taking and portfolio rebalancing as the cause for the abrupt reversal.
Today sees the USD continue on the back foot as the opportunistic bears, who have been pounded before yesterday, look to maintain their momentum and drive the currency lower. For now, the moves are largely technical and it is not until this afternoon, where we will have some fundamental data to drive price. The data will come in hard and fast as we see releases regarding housing, manufacturing and unemployment.
The Building Permits and housing Starts data, both expected at 1.23M, will indicate how healthy the housing market is, with better than expected result implying consumer are beginning to increase their demand for new houses, which has positive consequences for the economy at large and will likely see the USD strengthen. However, worse than expected housing data will see the USD weakened further as economic concerns creep in.
The Philly Fed Manufacturing Index, expected at 18.5, will give traders a clue as to how the all-important manufacturing sector is performing, with better than expected data likely to lead to a strengthening of the USD while worse than expected data will lead to a weakening of the USD.
The Unemployment Claims figure, will give the third dimension of how the US economy is fairing as we see the expected number slightly higher than the previous week, indicating that more people filed for unemployment last week. A higher than expected figure will see the USD weaken as more people head to the unemployment que while a lower than expected release will see the USD strengthen as traders’ price in an improvement in the labor market and hence the economy at large.