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US Dollar On A Tear As U.S. Puts Trade Wars With China “On Hold”.

By Alex Edwards

GBP/USD has fallen to its lowest level since December this morning, largely a result of a broadly stronger greenback. Risk sentiment has improved a little too after Treasury Secretary Mnuchin said that the U.S.’s trade war plans with China were on hold. With little by way of economic data releases on Friday from either side of The Pond, there was nothing to prevent the cable sell trend from abating. The pair broke down through the 1.35 big figure and is now flirting with 1.34.

There are quite a few public holidays throughout Europe and North America today so trading conditions will be thinner (and potentially volatile) although it means there’s less data prints so in the same breath it may also be a quiet start to the week. On the data front this week it’s a busy one with UK Inflation Report Hearings due tomorrow, UK inflation on Wednesday, various BoE Carney speeches towards the end of the week, UK Retail Sales on Thursday and UK Second Estimate GDP on Friday. By the end of this week the central bank will be hoping to be a lot clearer on an anticipated path for monetary policy.

The dollar has been bid higher throughout the past few recent sessions. In fact, the dollar index has reached 94.00, a five month high. The dollar’s strength is evident against both the pound and the euro, this move having been supported in part by waning risk appetite throughout the week just gone, but whether Mnuchin’s comments (see above) are enough to turn the tide on risk appetite, we’ll have to see.

There’s no data due for release today from The States. This week, at least as far as economic data is concerned, the focus will be U.S. FOMC Meeting Minutes on Wednesday evening, then on Durable Goods Orders on Friday, closely followed by a speech by Fed Chair Powell.

EUR/USD has continued its decline through Friday and overnight. Not only is it suffering at the hands of a stronger buck but it’s under pressure for a few political reasons, namely a questions about the intentions of the newly formed Italian coalition wanting to stay in the Eurozone. Markets are also worried that their proposals for lower taxes and increased public spending are a natural recipe for an increasing budget deficit. It’s a story that’s likely to weigh on the single currency through most of this week, albeit it’s a public holiday in most of Europe today so any form of selling may be a little less aggressive over the next few hours.

This all said, the euro remains unchanged vs. the pound and GBP/EUR opens this morning at very similar levels to Friday morning, and at more or less the mid-point for the range over the last few weeks or so. Data wise this week traders await the release of a series of French and German flash services and manufacturing PMIs on Wednesday and the ECB Monetary Policy Meeting Accounts on Thursday, arguably the main release of the week.

Risk appetite waned into the weekly close and weighed not only on US equities but commodities, broader yields and currencies like the AUD. Despite broader selling pressures the aussie dollar found support in words from US Treasury Secretary Steven Mnuchin, who confirmed “we’re putting the trade war on hold”, stemming fears global growth will unravel further in the face of sweeping trade taxes. While the response was muted, the comments were enough to prop up the AUD and encouraged optimism and a 20-point bounce in Wellington opening.

Attentions this week turn to commentary from RBA Governor Lowe on Wednesday while the FOMC meeting minutes Wednesday and commentary from Fed Chair Powell Friday will steer direction through the latter half of the week.

Canadian economic data was mixed on Friday with CPI inflation printing in line with market expectations. Headline Retail Sales, released at the same time, came in at 0.6% vs. expectations for 0.3% but with auto and parts stripped out of the number, it printed at -0.2% vs. 0.5%. Bets on a rate hike this month were severed on the news and USD/CAD gapped higher by +100 points.

It’s a public holiday in Canada today, so no data is due for release. USD/CAD opens in London at 1.2870, still close to Friday’s post data highs.

The New Zealand dollar got some short term relief after bouncing off critical long-term support levels last week at 0.6850. Opening Friday morning at 0.6870 we saw the Kiwi claw its way back above 0.69 US Cents during the domestic session.

It’s slipped back a little since as the US dollar pushes higher. NZ Retail Sales, released overnight, did the “bird” few favours either as the headline printed at 0.1% vs. expectations for 1.0%.