Intraday Market Thoughts

US Dollar Losing its Mojo

by Adam Button
Nov 25, 2014 23:30

It could be a holiday-shortened week near the end of the month but the inability of the US dollar to rally on good GDP numbers should be a concern. Overall, the yen was the best performer Tuesday in a modest relief rally while the Aussie lagged. The Asia-Pacific calendar features Japanese small business confidence. This week's Premium Insights include 2 new trades in USDJPY alongside 2 charts ahead of what will be a busy first two weeks of December, including Japan's elections, the Fed meeting and prolonged equity market gains.

The US dollar rose near the best levels of the day after GDP revisions but only for a moment. Afterwards a wave of selling took USD sharply lower.

Q3 GDP rose a hearty 3.9%, solidly better than the 3.3% reading expected. The gains came despite a downward revision in net exports and govt spending. Instead it was consumers and private investment that carried the growth, which is a good sign going forward.

EUR/USD fell to a session low 1.2402 after the data but quickly rebounded up to 1.2475 and then continued another 10 pips higher after soft US data from the Richmond Fed and weak consumer confidence.

What's most troubling is the lack of USD gains on GDP. It's not the first time recently that that dollar has struggled to capitalize on good news and oftentimes that's a warning for the bulls. Wednesday's durable goods orders and PCE numbers might send a clearer signal.

The other obsession in the markets is OPEC and oil. Crude is near the cycle lows after all signs on Tuesday pointed to no production cuts at Thursday's meeting. Instead, countries may pledge to follow current quotas more closely but that will be a disappointment to markets.

The Canadian dollar remains caught between lower oil and better economic data. In the past month, employment, CPI and manufacturing sales have all been bullish for the loonie. On Tuesday retail sales rose 0.8% versus 0.5% expected but the loonie struggled to hold onto gains.

Even if oil can stabilize, there could be some upside in CAD as fundamentals improve.

In the hours ahead, the focus will shift to Japan with the relatively minor release of small business confidence at 0500 GMT. The consensus is for a slight improvement to 47.5 from 47.4 but the risks may be to the downside given the drop in GDP.

Act Exp Prev GMT
GDP Price Index (Q3)
1.4% 1.3% 1.3% Nov 25 13:30
Durable Goods Orders (OCT)
-0.6% -1.1% Nov 26 13:30
Durable Goods Orders ex Transportation (OCT)
0.5% -0.1% Nov 26 13:30
Retail Sales Less Autos (SEP) (m/m)
0.0% 0.3% -0.2% Nov 25 13:30

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