US Dollar Recovers

Daily Analysis - 11/09/2017

Hurricane Irma Weakens Alongside Easing North Korean Tensions

The US dollar pulled away from last week's lows against the Euro after the weekend passed without any fresh missile launch by North Korea. The greenback was boosted even further after Hurricane Irma was downgraded following its Florida landfall.

Near-Term Dollar Outlook Remains Weak

The absence of any North Korean belligerence over the weekend came as a relief to dollar bulls, who were expecting a repeat of the prior week, when the regime conducted its biggest nuclear test to date. Last week, the dollar tumbled to a two and half year low against a basket of major currencies as investors cast doubts over whether the US Federal Reserve would be able to deliver another rate hike this year amidst the economic impact of Hurricanes Harvey and Irma.

Furthermore, concerns over political unrest in Washington have also fed into the greenback’s recent weakness. A deal to postpone debt ceiling talks until December, which coincides with the Fed's policy meet, has further decreased the likelihood of a rate increase. EURUSD is trading flat after the weekly reopening, with the pair last seen trading around the 1.2010-mark.

Japan Machine Orders Rebound

After contracting in June, Japanese machinery orders bounced back in July, growing at its fastest pace in 18 months according to government data unveiled overnight. Core machine orders climbed 8.00% month over month through the end of July compared to a -1.90% decline in June while easily topping a median forecast of 4.40% growth in a Reuters survey of economists.

Despite its important status a key leading indicator of capital spending, core machinery orders deepened their pace of decline on an annualized basis, slumping -7.50% through the twelve months ended in July. On a positive note, manufacturing sector orders edged 2.90% higher, while those in the non-manufacturing sector surged 4.80%. USDJPY is off the highs of the session, with the pair reversing from the strong resistance level emerging around 108.600.

UK Industrial Production Remains “Subdued”

British manufacturing picked up in July, but overall industrial output fell shy of market expectations, indicating economic activity remained sluggish despite consistently optimistic confidence surveys. Data compiled by the Office for National Statistics showed that on a monthly basis factory output grew by 0.50% in July to record its first monthly increase this year.

The monthly growth exceeded expectations of a 0.30% expansion, however, overall industrial production increased by a modest 0.20% in July, falling short of consensus expectations of 0.40% growth. Separate data from the ONS showed the UK's July goods trade deficit came in at GBP 11.60 billion, nearly unchanged from the previous month's revised figure of GBP 11.50 billion. A fall in outbound shipments to non-European Union countries was offset by an increase in exports to the monetary union. After dipping on Friday, FTSE 100 futures surged higher overnight, with the equity index retaking the 7400-level.

German Trade Surplus Narrows

With the nation’s exports struggling amid the recent gains in the Euro, German imports grew at a faster pace than exports in July, narrowing the country’s trade surplus and suggesting the economy will depend on domestic demand to propel third quarter growth. Data reported by the Federal Statistics Office on Friday showed that on a seasonally adjusted basis imports rose 2.20% while exports were up 0.20%.

Both figures came in below market forecasts, with the trade surplus narrowing to EUR 19.50 billion from EUR 21.20 billion in June while missing the Reuters consensus estimate of EUR 20.30 billion. The European Central Bank’s ultra-loose monetary policy strategy has helped lift the German economy, which no longer hinges on its traditional export engine and is instead driven by domestic demand. Following last week’s breakout higher, DAX 30 futures are extending recent gains, after opening just below 12,400.