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Dollar Bulls Charge Ahead as Data Validates Rally

  • Kathy Lien
  • 17 January 2020

Dollar Bulls Charge Ahead as Data Validates Rally

 

Daily FX Market Roundup 01.16.20

 

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management

 

The Dow Jones Industrial Average climbed to fresh record highs while the US dollar rose to its strongest level in 8 months against the Japanese Yen on the back of stronger retail sales.After weeks of disappointing economic reports, investors wanted to see data validate the rallies so they jumped on the report when it released, driving equities and currencies higher. Is the US economy out of the woods? Certainly not, but given how the market shrugged off softer releases like non-farm payrolls and CPI, a strong report was bound to have a bigger impact on the greenback than a weak one. Despite slower wage growth, consumer spending rose 0.3% in the month of December. This was in line but excluding autos and gas, spending rose 0.5% at the end of the year and manufacturing activity in the Philadelphia region recovered strongly at the start of the year.

 

However as encouraging as that may be, its also important to acknowledge the downward revision to the core numbers in November and the sluggish holiday sales numbers reported by Target yesterday.Spending in December may have been healthy but 2020 could be a challenge for retailers alike. Yet US policymakers remain optimistic with Fed Presidents Kashkari, Kaplan and Bowman expounding the positive outlook of the labor and housing market. The White House also teased the possibility of a tax cut which helps the rally. The Phase 1 China-US trade deal is also done and while its lacking in many ways, the hope is that trade tensions won't be an issue for the next few months. Tomorrow's housing and consumer confidence numbers are not expected to have a dramatic impact on the market but the relationship with Iran leaves the risk to the downside for sentiment.

 

One of the best performing currencies today was sterling and its strength is surprising given recent data and the talk of a rate cut this year.Sterling edged higher for the third day in a row and the only explanation is optimism ahead of the December retail sales report. According to the British Retail Consortium, demand was strong but that does not diminish the weakness that we've seen in industrial production and inflation. UK Prime Minister Boris Johnson also admitted that they may not be able to reach a trade deal with the EU this year. None of this is good for the UK and as things stand, rate cuts will certainly be on the minds of UK central bankers.

 

Euro pulled back after the ECB minutes from the December meeting revealed that "policy could be adjusted to reduce unwanted side effects."However with a "solid upward trend in underlying inflation ex holiday costs," Eurozone policymakers are in no rush to ease. Compared to other countries, we continue to see stabilization and improvement in the economy.

 

The Canadian and Australian dollars also lost value despite stronger Australian housing data this week.Despite the more than 1% rise in oil prices and stronger US data, the rally in USD/CAD is losing momentum. There's no specific explanation for the underperformance in AUD today outside of the broader US dollar rally but Chinese GDP, industrial production and retail sales numbers are scheduled for release and investors could be worried about the results. In contrast the best performing currency today was the New Zealand dollar. NZD shrugged off unexpectedly weak credit card spending numbers rising in favor of stronger house sales. Manufacturing PMI numbers are scheduled for release this afternoon and given the recent trend of data, an uptick is expected.

 

 

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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.