The US dollar may not be ready to roll over just yet: The Week Ahead

Movements of the US dollar following soft US CPI data has been the highlight for traders this week, which saw the US dollar index endure its worst day of the year on Wednesday. Yet with key levels of support holding around 104, dip buyers appear to be taking advantage of what appears to be a vanilla trendline trade; buy the dip around the trendline. Besides, we know that futures traders were heavily net long the dollar just one week ago, so perhaps this recent pullback will be seen as a decent buying opportunity by funds at better prices.

Unfortunately, we’ll have to wait until next Friday’s COT report to see just how many of the US dollar bulls were shaken out of their longs. But as we head into next week I suspect there could be some upside potential for the greenback.

FOMC minutes and Fed speakers are the main events for the US next week, although it is debatable as to how much volatility they will generate. On that same token, less data means less chance of bad data surfacing to push the dollar lower. So we may find that volatility is on the lower side, and that can often allow markets to retrace against their prior move. And in this case that could support the US dollar next week.

The week ahead (key themes and events):

FOMC minutes, Fed speakers (Powell, Barkin, Bostic)

US earnings (Nvidia, Target)

UK inflation

Flash PMIs

RBNZ cash rate decision


FOMC minutes, Fed speakers (Powell, Barkin, Bostic)

In all likelihood, the FOMC minutes will reveal little new information to help decipher the Fed’s next move. Regardless, it is one of those events that cannot be ignored. Their last minute reminded us that “members” wanted greater confidence that “inflation is moving sustainably towards 2%”. We know that inflation came in slightly softer and in line with market expectations, but I’d argue it hasn’t come down quickly enough to provide the confidence for the Fed it seeks to signal a cut, as much as traders want them to.

We also have plenty of Fed speakers, but looking through many of the titles suggests they might not be the biggest drivers for market volatility. But like the minutes, traders need to have these on their radar. Just in case.

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