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USD Weaker after Disappointing Data

18 July 2017FXEurope

Both US CPI and retail sales for June disappoint Friday, resulting in broad based USD pressure as markets further reduce the probability of a Fed December hike to around 30%.


  • USD: US June core CPI advances just 0.1% MoM in June, weaker than Citi's and consensus 0.2%. The monthly reading is below consensus for the fourth month in a row even though core YoY remains steady at 1.7%. Fed Funds pricing now attaches around a 30% probability of a December hike even as some in the Fed may see the data as supporting their view that transitory factors have dampened inflation.
  • USD: Headline retail sales also decline 0.2%, weaker than consensus and Citi analysts expectations for 0.1%.

Strategy: USD vulnerable to some further weakness towards the lower end of its trading range

  • Fed speak remains upbeat but increasingly lacks credibility in the markets' eyes and while a good deal of further Fed tightening has been priced out by markets, there still remains scope to do more on this front. Tactically this means a weaker USD, seen heading further lower in its 92.00 – 104.00 range that has held since the beginning if 2016. This implies further weakness against the euro and commodity bloc while Vs Yen, USDJPY is now seen in a 110.50 – 113.50 trading range.


Strategy: Both Pounds (GBP) and euro supported against a weaker USD with euro more resilient.

  • USD's tactical weakness could see a further leg higher in EURUSD. The only key event in the euro zone this week is the ECB meeting on Thursday. But with no updated staff forecasts until the September meeting, Citi Research expects unchanged guidance but no pushback from the recently more hawkish Draghi Sintra speech.
  • GBP also continue to strengthen as round two of Brexit negotiations kick off in Brussels.


Strategy: AUD & NZD upside momentum likely to falter, CAD more attractive

  • NZD falls after the New Zealand 2Q CPI miss this morning, coming in flat QoQ versus consensus looking for +0.2% and versus +1.0% the prior month.
  • For AUD, further tactical weakness in USD may lift AUD a bit further. However, Citi analysts see iron ore prices resuming their downtrend once again in the months ahead. As a result, caution is warranted and currencies such as EUR and CAD may be relatively more attractive alternatives with CAD in particular seeing the prospect of higher yields longer term amid more balanced positioning.


Strategy: Short term USD weakness likely to encourage some further gains in Asia EM

  • SGD: June NODX surprises positively, up 8.2% YoY versus consensus at +5.0%YoY with May NODX also revised upwards. T
  • With SGD already trading 1% stronger than the mid band, scope for MAS tightening seems discounted into market pricing though near term USD vulnerability could see USDSGD possibly head a bit lower still towards 1.3600 before momentum likely fades.

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