Though the dollar would show signs of life early in Tuesday’s trading session; the benchmark currency would ultimately end the day once again in the red. At this point, we have seen the dollar slide for the third consecutive session on a trade-weighted basis and 10 of the past 12 days against its benchmark counterpart the euro. It may surprise some that the dollar has maintained this disappointing trajectory despite promising event risk that would emerge throughout the trading day. But, the reality is that it takes a greater degree of influence to knock speculators off established trends; and the updates we have seen simply don’t meet the necessary criteria. On the other hand, the greenback may not be doing as poorly as EURUSD suggests. Over the past week, we have made the effort to differentiate the dollar’s performance against its various counterparts to garner a better sense of its individual performance. And, while the world’s most liquid exchange rate is still set up in its bull trend, we see that the dollar has held up far better against the other majors. The commodity bloc is still restrained to congestion, the disputed safe haven pairs (USDJPY and USDCHF) are trading within January’s range and GBPUSD saw its strongest dollar move in six weeks.
With prominent fundamental catalysts due later this week, there is a natural tendency to defer major positions (and thereby trend generation) until market participants are sure of the outcome to these upcoming events. With this distraction, the market would see a limited response to the scheduled event risk through the day. On the economic docket, the housing sector was given a disappointing bill of health after the S&P/Case-Shiller composite home price index saw a 1.6 percent annual pace of contract through November while the FHFA’s own home price index passed the month unchanged. However, the top economic report was the Conference Board’s consumer sentiment survey for January. The 60.6 reading was far better than expected, an eight month high and drew a distinct contrast to the disappointing University of Michigan figure. Yet, it was the details from the report that was truly encouraging. According to the statistics, the percentage of respondents that said jobs were plentiful hit its highest level since March 2009 and the fraction expecting an increase in income over the next six months rose to an eight-month high. Perhaps this economic recovery is on a far surer footing that many are expecting.
Conjecture about the return of the consumer sector is hard to translate into immediate trading. The same can be said about President Barack Obama’s State of the Union address. There was a tangible shift from monetary profligacy to conservancy; but it will take some time before stimulus measures are unwound and deficits are reined in. In the meantime, we have two events ahead that can significantly alter the course of the dollar in the short-term. Of the two, the advanced reading of 4Q GDP is top risk; but that is later down the line. Tomorrow, the market’s attention will be on the FOMC rate decision. Given the stubbornly high level of joblessness, the absence of pressing inflation and Fed members’ commentary these past weeks and months; there is unlikely to be any meaningful change in the group’s policy stance. That said, these meetings are just as much about nuance as blatant changes. If the market interprets an early end to the stimulus program, the dollar will rally.