Article / 14 February 2018 at 22:51 GMT

US Wrap: Dollar dives after data drama

FX Trade Strategist /
  • There were hits and misses in US inflation data; USD soared and tumbled
  • The GDPNow estimate from the Atlanta Fed has fallen
  • US crude inventories rise less than expected, lifting prices
  • EURUSD may be in for a choppy ride today
By Michael O’Neill

NY Focus: It was another St Valentine’s Day massacre on February 14. The only thing missing was the infamous Chicago gangster Al Capone. The US dollar started the session in a jittery fashion. but close to its Tuesday’s closing levels. Sterling was weighed down by Brexit issues with UK Foreign Secretary Boris Johnson stirring the pot.

The commotion began when the US data was released. January CPI rose 0.5%, m/m (beating the forecast 0.3% rise), core CPI was 0.3% m/m (just above the forecast 0.2%) The year over year rate was 2.1%, beating the 1.9% estimate but unchanged from the December year over year level.

A slump in store ... weaker than expected retail sales for January may explain why US dollar buyers suddenly turned into dollar sellers. Photo: Shutterstock

The US dollar soared. EURUSD dropped to 1.2277 from 1.2350, GBPUSD fell to 1.3801 from 1.3865, USDJPY rallied to ¥107.50 from ¥107.00.

Perhaps it was the weaker than expected January Retail Sales data (Actual -0.3%, m/m vs forecast 0.2%), or the spike in US Treasury yields, (the two year yield rose 3.12% to 2.17%), as dollar buyers suddenly turned into dollar sellers. EURUSD screamed higher and closed at 1.2462. GBPUSD blasted up to 1.4015. USDJPY was a tad calmer, finishing at ¥106.93.

FX price swings at a glance- FX majorssaxo 10 minute chart

Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more

As for the impact of the CPI figure, a couple of economists believed that it was enough to increase the pace of rate hikes.  But another economist wasn't impressed, and said that unseasonably cold weather across the US played a factor.

Wall Street reacted negatively to the inflation data. It didn't last. and equities rallied. The Nasdaq posted a hefty 1.86% gain, the Dow Jones Industrial Average rose by a solid 1.03%, and the S&P 500 notched a sound 1.34% gain. All three indices are back in positive territory, for the year to date.

The commodity currency bloc was rocked as well, but the trio finished the session with big gains.

Oil prices rose, supported by a smaller than expected rise in crude inventories. The Energy Information Administration said crude stocks rose 1.84 million barrels, which was below the forecast for a 2.82 mln barrel rise. The free-falling dollar helped, and WTI bounced from $58.23/barrel to $60.87/b by the end of the day.

Thursday Focus EURUSD may be in for a choppy ride. There isn’t much data but a couple of European Central Bank speakers could provide some push-back against the EURUSD rally.

The short-term technicals for EURUSD look bullish, supported by the break above 1.2410 and have 1.2530 in their sights. However, the US dollar index warns that prices may consolidate If support at 88.35 gives way.

Four-hour USDX chart
Source: Saxo Bank 

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– Edited by Robert Ryan

Michael O'Neill is an FX consultant, currency strategist and author of the Trade of the Day at Follow Mike or post your comment below to engage with Saxo Bank's social trading platform.

John Shaw John  Shaw
USDCAD had a bit of a weird swing today too. Straight up. Down for the rest of the day.
Market Predator Market Predator
Also very interesting reaction on Gold.


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