Elementary Forecast for the US Greenback: Impartial
- The primary occasion of the week might be Fed Chair Jerome Powell heading to Capitol Hill for 2 days of testimony to ship the semi-annual Financial Coverage Report.
- However merchants shouldn’t sleep on the US financial calendar. The upcoming January sturdy items orders and PCE/Core PCE value indexes could additional enflame inflation fears, sparking extra features by US yields.
- The IG Client Sentiment Indexsuggests the US Dollar has a combined bias heading into the final week of February.
US Greenback Decrease as Inflation Expectations, Yields Rise
The US Greenback (by way of the DXY Index) turned decrease on the finish of the week, kneecapping the nascent rally by the pandemic downtrend (March and November 2020 highs). US financial information has been outperforming, resulting in an increase in each US nominal yields (Treasuries) and inflation expectations (breakevens), however with latter rising sooner than the previous, US actual yields have come again down. Notably, EUR/USD completed the week above 1.2100 once more, whereas GBP/USD closed proper at 1.4000 for the primary time since mid-April 2018.
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US Financial Calendar Loaded with Threat
The final week of February brings a bonafide cornucopia of occasion threat for the US Greenback. The primary occasion of the week might be Fed Chair Jerome Powell heading to Capitol Hill for 2 days of testimony to ship the semi-annual Financial Coverage Report (which we focus on in larger element beneath).
However the financial calendar itself is supersaturated with occasion threat in any other case, doubtless giving merchants loads of alternatives to catch bouts of volatility in USD-pairs over the approaching days:
- On Monday, February 22, Federal Reserve Board Governor Michelle Bowman will ship a speech.
- On Tuesday, February 23, the December US home value index might be launched, as will the February US shopper confidence report. Moreover, day 1 of the Humphrey-Hawkins testimony will start.
- On Wednesday, February 24, January US new house gross sales information might be launched. The Fed’s Brainard and Clarida will each give speeches. Moreover, day 2 of the Humphrey-Hawkins testimony will wrap up.
- On Thursday, February 25, January US sturdy items orders might be launched, which might shock to the upside in a similar way to the January US retail gross sales report. The second launch of the 4Q’20 US GDP report is due, as is the weekly US jobless claims report. Later within the day, January US pending house gross sales might be launched. The Fed’s Quarles and Williams will each give speeches.
- On Friday, February 26, January US PCE and Core PCE information might be launched, as will January US private earnings and spending information. The January US good commerce steadiness is due, as is the ultimate February US Michigan shopper sentiment report. Lastly, the US price range plan for fiscal 12 months 2022 might be launched to cap off the week.
Atlanta Fed GDPNow 1Q’21 Development Estimate (February 18, 2021) (Chart 1)
Primarily based on the information acquired so far about 1Q’21, the Atlanta Fed GDPNow forecast is on the lookout for progress at +9.5% annualized. The estimate has risen sharply in current weeks, from +4.5% in early-February, bolstered by a a lot better than anticipated January US retail gross sales report (because of these $600 stimulus checks, in addition to larger confidence amongst customers as vaccination charges speed up). The following 1Q’21 Atlanta Fed GDPNow forecast might be launched on Thursday, February 25.
Fed Nonetheless in Focus
Federal Reserve policymakers have been nonchalant concerning the accelerating US economic system, with FOMC member and St. Louis Fed President James Bullard saying that we’re not essentially in a “bubble,” however relatively coping with “regular investing” in current days. Fed Chair Jerome Powell himself for week has been tamping down taper tantrum speak, however all of views on the US economic system will come into focus this week when he heads to Washington, D.C. for the semi-annual Humphrey-Hawkins testimony.
Federal Reserve Curiosity Charge Expectations (February 19, 2021) (Desk 1)
In delivering the semi-annual Financial Coverage Report back to Congress, the Fed Chair could be very doubtless to make use of his time on Capitol Hill to assuage considerations that the rise in US Treasury yields is foreshadowing harrowing ranges of inflation. Fed Chair Powell could very nicely acknowledge that inflation might rise, however the Fed appears poised to ‘look by’ any uptick within the near-term.
So long as Fed Chair Powell is on the helm, the FOMC will keep the course, with the intent of holding rates of interest low by 2023. Fed funds futures are pricing in a 96% probability of no change in Fed charges in 2021. For context, one month in the past, when the US Treasury 10-year yield was some 20-bps decrease, Fed funds have been pricing in a 93% probability of no change in charges. Even because the US Treasury yield curve has steepened over the previous month, market contributors don’t foresee any acceleration within the Fed’s efforts to normalize coverage.
For full US financial information forecasts, view the DailyFX economic calendar.
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US Greenback Internet-Shorts Sticking Round (Chart 2)
Lastly, taking a look at positioning, in line with the CFTC’s COT for the week ended February 16, speculators barely elevated their net-short US Greenback positions to 14,287 contracts, up from 13,875 contracts held within the week prior. Internet-short US Greenback positioning is close to its highest ranges since March 2011, when speculators held 15,494 net-short contracts. General, positioning has been comparatively regular for the reason that third week of December, when speculators held 14,056 net-short contracts.
— Written by Christopher Vecchio, CFA, Senior Foreign money Strategist