Saturday April 25, 2015 - 11:57:21 GMT
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Is the Dollar Bull Run Ending?
John M. Bland
U.S. Economic Prospects in Doubt?
Honestly I don't know, but I am now not nearly as bullish on the USD as I was a few weeks ago. It all depends on future U.S. data we have not seen yet. Currently just about every analyst blames the poor performance of the U.S. economy in 1Q15 on the severe winter. But it gets cold every winter and isn't that what seasonal-adjustments to data are all about? Many are expecting annualized 1Q15 GDP (seasonally adjusted) to have been about flat in the period. 2Q15 GDP is expected to rebound strongly, but we will see. Once we start to get an inkling of what is happening this quarter, you might want to average that data with the first quarter reports to get a better feel for how the economy is doing. This all matters a lot to forex traders because it is the strength of the economy that will drive Fed policy, and the relative level of interest rates can have a major inpact on the value of the USD. A couple of drags on the economy have been the surge in the value of the U.S. currency which has adversely-impacted the value of U.S. exports and have made foreign imports more competitive against domestically prduced items. A second major influence has been the cheaper price of oil globally, which has hurt jobs growth in the key energy sector of the U.S.
How About The Eoro?
When it comes to forex, there are always two sides to any relationship. One currency can only be valued in terms of another. By far the most significant trading relationship is the EURuSD pair. So if there are some doubts about the USD, how about the EUR? Because the European Central Bank was slow to respond to the weakness of the Eurozone (ex-Germany), It was forced a month or so ago to implement an aggressive policy, Quantitative Ease (QE), to promote economic growth in the rest of the Eurozone. QE involves pumping a lot of liquidity into the system hopefully to promote growth and also to drive the currency lower. QE has not always worked. In fact there are few instances that can be pointed to where it has been successful. Bottom-line, while doubts about the U.S. are surfacing, there is no obvious alternative. That suggests there may be two-way trading in this pair until a clearer picture becomes evident.
The upcoming week is a full one for data. Monday, April 27 features the Markit flash PMI data for the U.S. On Tuesday, U.K. GDP and the U.S. Conference Board Consumer Sentiment are due. On Wednesday April 29, two major items are due: the first set of 1Q15 GDP data, and the latest policy decision of the Federal Reserve. No rate changes are expected. Thursday April 30 features flash Eurozone CPI data, which is a policy focus for the European Central Bank. The Fed inflation policy target, the PCE deflator is due as well. On Friday May 1, many markets will be closed for the May Day holiday. Key markets that are open will see final Manufacturing PMI data for April. The final University of Michigan Survey will be a focus as well.
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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