Dollar Falls as Investors Cut Long Positions

Daily Analysis - 22/02/2016

Dollar Falls as Speculators See Reduced Chance for Rate Hikes


According to the weekly Commodity Futures Trading Commission report, investors reduced their long exposure to the U.S. dollar in the week ending February 16th. The dollar position fell to approximately $10.9 billion as expectations are scaled back on the Federal Reserve’s proposed four rate hikes this year. The US dollar index fell -0.29% on Friday despite strong inflation data, closing at 96.59.

US Core CPI Highest Since 2012

The Labor Department's inflation report released on Friday showed the US consumer price index rising 1.4% on the headline figure when compared with last year. Expectations were for an increase of 1.3%. The core CPI was up 2.20% compared to a year ago in January, marking the biggest increase since June 2012. Energy prices continued to remain a drag on inflation and on a monthly basis, inflation was largely flat. The surge in inflation data in January has rekindled forecasts for the Fed to keep up its hawkish stance, with the probability for a December rate hike rising to 43% from the previous 32%. The US dollar edged higher after the inflation data was released but soon gave back its gains towards the market’s closing hours. USDJPY remained weak, posting a second day of declines at 112.56. The pair opened today at 112.588 and is currently attempting to push higher, trading at 112.93 at the time of writing.


Canada Retail Sales Fall Sharply in December

Retail sales numbers from Canada for the month of December saw a sharp decline, reversing the previous month's gains while illustrating the weakness in the Canadian economy. The total value of retail sales in Canada fell 2.2% in the month of December, marking the lowest level seen in nearly six months according to data released by Statistics Canada on Friday. The declines came about as economists expected to see a a 0.9% drop in retail sales. November’s core retail sales were also revised lower. The data release marks the final economic report ahead of the GDP data for the fourth quarter of 2015, due for release in early March. USDCAD surged strongly on the news, largely on account of better inflation numbers from the US and the late Thursday declines in WTI Crude Oil prices. USDCAD closed the day at 1.3767 posting a second day of gains following a decline to 1.3671 earlier in the week.


Oil Prices Ease Back After the Rally

A day after Iran announced that it was joining Saudi Arabia, Russia, Qatar, Kuwait and Venezuela to freeze production at January levels, WTI Crude Oil prices posted two days of declines after hitting a 12 day high at $31.96 on February 18th. The weekly US Crude Oil inventories report showed an increase of 2.1 million barrels, coming in below estimates of 3.2 million barrels. Futures for March delivery settled at $29.73 by Friday's close, with further declines expected as the details of the ‘Doha Deal’ are yet to be finalized. Furthermore, the markets are starting to realize that the agreement to freeze production levels will do little to stabilize oil prices. According to Bloomberg, Saudi Arabia and Russia’s oil production in January hit one of the highest production levels ever indicating that the supply glut could be far from over. For the week, WTI Crude Oil closed with gains of nearly 1.96%.


Anticipation Before Release of Eurozone Flash PMI

The markets are looking towards a slow day today, with no major releases in store. In Europe, flash PMI data is due which also includes the composite, manufacturing and services PMI data. EURUSD managed to trim some of the declines from earlier in the week and closed Friday’s session on a modestly bullish note at 1.1128. On Friday, the ECB’s Ignazio Visco sparked expectations for policy actions from the European Central Bank in the upcoming meeting in March. He said that core inflation was too far from the ECB's 'price stability' definition and that the ECB has plenty of instruments to steer monetary policy. He said that the ECB will act decisively to achieve the 2% inflation target and that there was no reason to deviate from the said target. Later in the week, the Euro zone CPI data is due for release before the ECB’s meeting gets underway in March. EURUSD gapped lower today, opening at 1.1116.


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