Break or make for Dollar | Market Outlook, Jan 22, 2018

Market Outlook

Break or make for Dollar

The week ended with the dollar declining against other major currencies on Friday which was its biggest fall since June in reaction to the remarks by U.S. Treasury Secretary Steven Mnuchin hailing a feebler dollar.

The U.S. dollar index, that reckons the dollar’s might against six major currencies, fell 0.36% at 88.87 late Friday.

The USD regained strength after US President Donald Trump stated on Thursday that the U.S. currency was likely to show improvement and added that the comments by his Treasury secretary had been misconstrued by investors.

The USD stood lower after statistics on Friday indicated that the U.S. economy grew by a mere 2.6% in the fourth quarter, rather than 3% as projected.The USD declined against the yen on Friday, with USD/JPY reaching 108.58 following Bank of Japan Governor Haruhiko Kuroda’s statement that the bank anticipates the economy to continue growth at a reasonable pace and inflationary projections to be improving.

Oil prices continued to increase in the past week, as another blow to the USD with a tenth successive week of decline in U.S. supplies raised prices. Gold closed lower on Friday but remained in sight of the earlier day’s 17-month high as the USD was strained by statistics indicating sluggish U.S. economic growth and remarks by Mnuchin.

The pound edged higher against the USD, with GBP/USD growing 0.15% to 1.4159 over hopefulness regarding Brexit and the fiscal outlook.

The euro rose against the dollar on Friday, with EUR/USD up 0.24% at 1.2427 following an over three-year high of 1.2537 on Thursday.

ECB President Draghi censured Mnuchin’s remarks on the dollar on Thursday, cautioning that such statements breached international treaties formulated to stop currency battles.

A firmer euro makes the ECB’s job of reinforcing inflation tougher as cheaper imported commodities act as a strain on prices.

In the week ahead, investors will shift their attention to the crucial Federal Reserve meeting, the final one under Janet Yellen before she passes the baton to Jerome Powell.

Friday’s U.S. jobs data for January and Wednesday’s euro zone inflation figures will also be keenly awaited.

Over the past six weeks gold rebounded from a low of $1238 all the way to $1365 in recent days, but technicals and sentiment appear to favour a short-term correction for gold in the coming week. That is good news for anyone who missed the rally as it would present a good buying opportunity before a major breakout.

The Australian Dollar could be somewhat less impacted by the US Administration in the coming week, which may render it looking a little feebler than it has been. Australia is to release inflation data on Wednesday.

Next week the euro zone is to publish a preliminary estimate of the fourth quarter economic growth and Bank of England Governor Mark Carney is to appear before the House of Lords Economic Affairs Committee, in London.

Also awaited is China’s report on manufacturing and service sector performance while Canada is to publish its monthly GDP report.

The U.S. is to wind up the week ahead with the nonfarm payrolls statement for January as well as revised figures on consumer sentiment and a report on factory orders.

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