If today’s US data disappoints, the dollar’s recent correction could continue, causing the greenback to lose ground and target specific price levels versus the euro, yen, British pound, and Aussie.
It was a meandering night of trading in the FX market with high-beta currencies trying to rally early in the session on hopes that a People’s Bank of China (PBoC) news conference would allay investor fears about a liquidity crunch in the Chinese markets. The conference was not an official PBoC event, but Chinese authorities did address the recent volatility in the markets, stating that they expect the "seasonal" factors to disappear and adding that they are watching liquidity conditions carefully.
The news provided a modicum of support to risk assets and European markets rallied in response. Initially, it caused a pop in the euro (EUR), Australian dollar (AUD), and British pound (GBP), but the gains dissipated as morning dealing progressed and currencies remained in tight consolidation ahead of the North American open.
The news out of China did ease the pressure on US rates, however, and ten-year Treasury yields dropped below the key 2.50% mark, sending USDJPY below the 97.00 figure. The pair quickly found support at that level, though, and rebounded to 97.20. Still, if US yields continue to decline throughout today’s North American trade, USDJPY will likely revisit 97.00 later in the day.
The economic calendar was very quiet, but the one data point that did appear on the docket continued to show recovery in the UK economy. UK mortgage applications rose to an impressive 36.1K versus 33.1 expected, which indicates that the housing market in Britain continues to improve.
The mortgage data is just the latest example of stronger-than-expected economic releases from the UK, suggesting that Q2 GDP performance is likely to be considerably better than initially thought. The GBPUSD pair saw little reaction to the news, but remained relatively well bid nonetheless, and the pair could make a run towards the 1.5400 level later in the day if the correction in the US dollar (USD) rally continues.
4 Dollar Moves That Could Happen Today
The dollar’s recent correction could in fact accelerate during today’s North American session if US data disappoints the market. With durable goods, new home sales, and the Case-Shiller index all on the calendar, investor will have plenty of data to digest during North American trade.
Moreover, today’s housing data could be of particular interest. Housing has been one of the key drivers of the recovery, spurred on by low interest rates. However, it will be interesting to see if the recent uptick is having any dampening effect on demand.
It may be too early to gauge the impact of rising rates on the US housing market, but if the data does disappoint, the dollar is likely to sell off, as US yields will continue to retreat from their highs.
Monday was the first day in more than a week that the dollar saw weakness across the board as investors reconsidered the prospects of Fed tapering. If today's US economic data misses its mark, that skepticism will only increase, sending USDJPY through 97.00, EURUSD through 1.3150, GBPUSD towards 1.5400, and AUDUSD to 0.9300 as the day progresses.
By Boris Schlossberg of BK Asset Management