US Dollar Muscles Higher

The US dollar put in an impressive performance Tuesday even as the Turkish lira rebounded. The Canadian dollar was the top performer while the euro lagged. UK CPI is due out later but first it's Australian wage data. Besides buying USD, shorting indices seems to be the path of least resistance. A new Premium trade was posted earlier today, backed by the chart below.

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The US dollar muscled its way higher against most of the market on Tuesday in an impressive showing. Risk assets were strong and the Turkish lira rebounded 8% but that didn't halt the dollar's advance. Part of the thinking is that the lack of contagion, at least so far, clears another hurdle for the Fed to hike rates twice more this year.

Another line of thinking is that if there is contagion, it's going to hurt European banks and by extension hurt EUR/USD. The euro chart continues to break down and hit a 1.1340 in a drop the lowest since July 2017.

Economic data was limited to import/export prices. US import costs were down 0.1% m/m and exports down 0.5% m/m in a sign that tariffs are still only impacting a small part of the economy.

The Canadian dollar was strong in part due to a comment from fin min Bill Morneau late on Monday that he was cautiously optimistic about a future deal on NAFTA.

Looking ahead, Australian Q2 wage data is due at 0130 GMT. Rate hikes aren't on the RBA's radar at the moment but the jobs market is tight. The consensus is for a 2.1% y/y rise in wages. We think that globally wage numbers bear close watching because there should be some correlation (or not) and that will help to solve many of the Phillips Curve arguments.

A data point that will spark a bigger market moves comes at 0830 GMT when the UK releases July CPI numbers. The consensus is for a 2.5% y/y rise. Note however that lower unemployment in the UK Tuesday was paired with soft wages and eventually Brexit concerns sent cable to a 14-month low of 1.2705. Watch out for more selling even if there's a CPI-inspired bounce.