Dollar Still Reluctant to Bounce

Fledgling signs of life in the US dollar were snuffed out Thursday. Is it another sign that the next big theme is to sell the buck? The top performer was the pound while the kiwi lagged. Japanese CPI in the hours ahead may help kick USD/JPY out of its range.

The US dollar bulls launched assaults on two fronts Thursday: USD/JPY and AUD/JPY. The dollar climbed to 97.62 against the yen in early European trading but couldn't hang onto the gains and fell back to unchanged. The range in US trading was only 21 pips as the market waits for clues on direction.

A later move was an attempt to sell the AUD/USD and the pair looked to be headed lower after a break of 0.9600 in early US trading but solid risk appetite in the stock market prompted a rebound to unchanged levels on the day at 0.9618.

What's the takeaway? The US dollar certainly isn't strong. It's been more than a week since the post-fiscal impasse selloff and there have been no signs of a strong rebound. The consolidation could simply be the step toward the next phase of dollar selling.

Ultimately, US economic data will decide. On Thursday the Markit PMI fell to 51.1 compared to 52.5 expected with output at a two year low. It could be a sign of pain in the economy due to the shutdown so it's difficult to draw conclusions.

Other data was mixed. Initial jobless claims rose to 350K compared to 340K expected but reporting problems in California render the data set virtually useless for now. The August JOLTS report was upbeat but it's so far in the rearview mirror that it vaguely factors into market decisions.

We will be watching USD/JPY closely in the day ahead. The BOJ would love to see signs of inflation in the 2330 GMT CPI report. National CPI is expected to be flat year-over-year ex food and energy. Signs of stubborn deflation could encourage the BOJ to explore fresh action and would boost USD/JPY.