It hasn’t been an easy week for USD Bulls. Based on the close of NY Trade, the USD Index has fallen five consecutive days testing the 94.05 level last seen on June 24th……the day of the UK referendum.
Even though the US data flow has been on the firm side, the somewhat dovish comments out of the FOMC minutes has kept the downside pressure on the Greenback. Yesterday’s lower jobless claims, the uptick in the Philadelphia FED index and increase in the leading economic indicators were just not enough to convince FX investors that the US FED is serious about further normalization of interest rates this year.
With no first-tier data on the US schedule today, the best USD Bulls can look for will be a consolidation session which will allow investors with a longer-term time horizon to look for levels to establish better positions for the Central Bank divergence trade to re-gain market momentum. Besides, the FOMC holding on rates is much different than the other G-7 Central banks which are still lowering rates.
Over the last three trading sessions, the best performing currency pair has been the GBP/USD. Since posting its lowest close in almost to 15 years near 1.2880 on Monday, the pair has rallied 300 points to its highest level in two weeks near 1.3175. Yesterday’s leg higher was triggered by a much stronger than expected retail sales report which posted a 1.4% gain versus a median forecast of around .1%. Clearly, the weaker Sterling has attracted tourists and boosted demand across the UK. In addition, the historically large short position in the pair reflects and unbalanced market due for a short-covering correction higher.
Looking ahead to next week, we expect the broader-based UK GDP data will reflect more negative aspects of the Brexit result and print lower than the .6% pace from two months ago.