US Dollar Rebounds. What Next?

Another bounce in the dollar to fade? The greenback was the top performer while the pound lagged. Japanese employment and retail sales are due up next.

بين الفيكس و المؤشرات (فيديو للمشتركين فقط)

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US Treasury yields continued the march higher with 10-years hitting 2.70% on Monday and that was part of the reason for a bounce in the dollar. Another factor was US personal income beating expectations a +0.4% m/m compared to +0.3% expected. Spending was slightly lower than expectations but the prior revised higher. The Atlanta Fed pegged its first tracking estimate at Q1 GDP at 4.2%.

While there is solid optimism about the US dollar, there are higher hopes elsewhere and that's the paradigm driving the dollar trade right now. All the money that flowed into the US dollar during the European crisis is now headed back home.

Emerging market and commodity investors are also shifting towards more aggressive investments and that's usually outside the US.

So long as risk appetite remains robust – and there is no reason to think it won't – then dollar bounces will continue to be sold. Even on Monday, the strong start for the dollar that pushed the euro down to 1.2337 faded later and it bounced to 1.2375.

In terms of USD/JPY, the pair battled to get above 109.00 and was helped by talk of a BOJ/MOF meeting but it's too soon to talk about intervention, especially with the dollar struggling so broadly and Japan's economy doing relatively well. As for what's next, Japanese employment is due at 2330 GMT but the more-intriguing release is 20 minutes later with retail sales. The consensus is for a 0.4% m/m decline.

It's unlikely to be a market mover but if Japan can put together a long string of strong data points, then yen buying could get very aggressive.