Forex: US Dollar Outlook Clouded Amid Fed Taper Speculation

DailyFX

The outlook for the US Dollar appears clouded after yesterday’s response to “pro-taper” economic data unexpectedly sent the benchmark unit lower.

Talking Points

  • Dollar, S&P 500 Yield Divergent Responses to Pro-Taper US Economic Data
  • Fed Policy Speculation Remains in Focus But Outlook Clouded in Uncertainty

The past 24 hours of price action have been somewhat puzzling. The spotlight was firmly pointed at US economic news-flow with an eye on what it might mean for the probability of a Fed move to begin tapering QE asset purchase at the September policy meeting. July’s headline year-on-year CPI inflation rate rose in line with consensus forecasts while the weekly Jobless Claims data set surprised to the upside. On balance, these outcomes seemed to fall on the “pro-taper” side of the spectrum.

The S&P 500 responded as might have been expected, with the prospect of stimulus withdrawal sending the index to a five-week low. Such an environment ought to have been broadly positive for the US Dollar. A reduction in QE implies a supportive shift in the monetary policy outlook, reducing the threat of Dollar dilution via money-printing and implying an improvement in the greenback’s yield profile. The opposite turned out to be the case however, with the US unit sliding against its major counterparts.

That makes for a clouded landscape as we enter the final hours of the trading week. A quiet economic calendar in European hours once again puts the onus on the US data docket, where July’s Housing Starts and Building Permits figures as well as the preliminary estimate of Augusts’ University of Michigan Consumer Confidence gauge are on tap. Improvements are expected all around, which ought to bolster the argument in favor of a tapering effort in September. What that means for the US Dollar in the current environment is unclear however.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

No Data

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:00

EUR

Euro-Zone Current Account s.a. (€) (JUN)

-

19.6B

Low

8:00

EUR

Euro-Zone Current Account n.s.a. (€) (JUN)

-

9.5B

Low

9:00

EUR

Euro-Zone Trade Balance n.s.a. (€) (JUN)

-

15.2B

Low

9:00

EUR

Euro-Zone Trade Balance s.a. (€) (JUN)

-

14.6B

Low

9:00

EUR

Euro-Zone CPI (MoM) (JUL F)

-0.5%

0.1%

Medium

9:00

EUR

Euro-Zone CPI (YoY) (JUL F)

1.6%

1.6%

Medium

9:00

EUR

Euro-Zone CPI - Core (YoY) (JUL F)

1.1%

1.1%

Medium

Critical Levels:

CCY

SUPP 3

SUPP 2

SUPP 1

Pivot Point

RES 1

RES 2

RES 3

EURUSD

1.2991

1.3148

1.3248

1.3305

1.3405

1.3462

1.3619

GBPUSD

1.5285

1.5441

1.5543

1.5597

1.5699

1.5753

1.5909

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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