Dollar and Oil Keep Pushing Higher

Weekly Report - 21/05/2018

U.S. – China Trade Tensions Reduced


U.S. retail sales rose 0.3 percent in April, indicating a second straight month of gains and providing evidence that American consumers are still spending. Yields on the benchmark 10-year U.S. Treasury yield surged to new seven-year highs on the report. This lifted the greenback across the board. The markets reacted positively since the data is expected to keep the Federal Reserve on track to continue its gradual rate hike cycle, with the next quarter-point increase widely anticipated in June.

Last Week

The euro got knocked down by the stronger dollar, while gold, which has an inverse price relationship with USD, tumbled below the key $1300 level for the first time since December 2017. Against the yen, the U.S. currency rallied to fresh 4 – month highs and briefly breached the 111 – yen level for the first time since January.

Brent crude oil on Thursday topped $80 a barrel for the first time since November 2014 and WTI oil continued to rise to near 3½ year highs near $72 a barrel, on concerns about U.S. sanctions on Iran after President Donald Trump announced he would withdraw from the JCPOA.

Also boosting the market, the U.S. Energy Information Administration reported on Wednesday that oil in storage in the United States fell more than expected


This Week

Risk sentiment is back in the markets after news over the weekend that the U.S. will not impose further tariffs on China for the time being. The notion that the trade war between the two countries is hold has led to a positive reaction in the markets. U.S. stocks are expected to open higher today. The futures markets for the S&P and Dow have already opened with a gap higher this morning.  The rise in U.S Treasuries helped lift the greenback while safe haven assets like gold and the yen struggled. Oil prices also jumped higher due to risk sentiment.

Looking at the economic calendar for this week, several major events will be in focus. The highlight of the week will be the FOMC minutes out on Wednesday. Investors will look to see if the minutes will provide further clues about the Fed’s rate hike path. Many analysts expect at least 3 rate hikes this year. Hawkish FOMC minutes could provide a catalyst for the dollar to move higher. U.S. durable goods orders on Friday will also be important to watch. They are expected to show an increase of 0.5% in April. A batch of strong U.S. data recently (including last week’s retail sales), would push the Fed to raise rates faster.

The U.K. will be very much in focus this week. All eyes will be on the inflation report hearings and CPI data, on Tuesday and Wednesday respectively. Retail sales numbers are due on Thursday and are expected to rise 0.7 percent month-on-month in April. Such a positive outcome would provide some respite for the pound which has been struggling against the strong dollar. Meanwhile, BoE Governor Mark Carney will be speaking at some events later in the week. If he mentions anything on monetary policy this could provide volatility for the pound.

In Europe, focus will be on Italy and who will be appointed as the new Prime Minister. Meanwhile, any talk of the new government to cut its debt payments to Brussels could impact the euro negatively.


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