Talking Points:

Fundamental Forecast for USD: Bearish

It’s been a chaotic and somewhat climactic week for the US Dollar. The Greenback started the week by extending last week’s jump; and that strength largely remained until we got to Thursday. The big driver behind the Dollar appeared to be the testimony from incoming Fed Chair Jerome Powell on Tuesday; as he talked down the prospect of the ‘Fed put’ while also implying that we may get as many as four rate hikes out of the United States this year. Stocks did not like this implication, and US equities traded lower thereafter; but it was the perk in the Dollar that really seemed to get attention across FX markets as there appeared to be a very legitimate chance of the Greenback breaking its year-long slump that’s seen as much as 15% of its value erased.

US Dollar via ‘DXY’: Down-Trend Takes Out 15% of USD’s Value (2017 High to 2018 Low)

Chart prepared by James Stanley

That Dollar strength saw a brisk turn-around on Thursday, and the near-term high appeared to set just ahead of Mr. Powell’s second day of testimony. USD pulled back and started to show support around the February swing-high; and that’s when President Trump announced potential tariffs on Chinese steel and aluminum of 25%. I say potential tariffs, because that’s all that we know at this point, and this is far from a done deal. But the initial market reaction was not one of comfort, as this led to a pattern of weakness in all of US Stocks, US Treasuries and the US Dollar.

US Dollar Strength Pulls Back, DXY Falls-Below 90.00 After Tariff Announcement

Chart prepared by James Stanley

Obscured by the bigger headline events of the week was a mixed bag of data out of the US that had one very bright spot. On Tuesday, US Durable Goods Orders for January were released, and fell by -3.7%; eclipsing the 2% contraction that was expected. But – on the polar end of the spectrum was the Consumer Confidence number released just an hour-and-a-half later, reading at the highest level since the year 2000, shortly before the ‘tech boom’ became the ‘tech bust’. Later in the week, PCE printed right at the 1.5% expectation, and ISM numbers beat the expectation; but by the time these data points made their way through markets, there were other topics dominating the conversation.