Dollar remains vulnerable, focus turns to inflation data

Share:

In a shortened week, the US Dollar posted losses again. Next week, the key report in the US will be the Core PCE. Consumer inflation data is also due in the Eurozone with the preliminary November figures and in Australia with the October Monthly CPI. The Reserve Bank of New Zealand will announce its monetary policy decision.

Here is what you need to know for next week: 

The US Dollar extended its decline and was the weakest performer among majors. The US Dollar Index (DXY) broke below 103.50, reaching the lowest level since mid-August. The negative momentum could persist as markets continue to focus on the Federal Reserve (Fed) not raising rates further, despite divergences in economic growth. The US economy continues to grow and is much stronger than European countries. The latest reports, the PMIs, showed the US Composite at 50.7 compared to the Eurozone Composite at 47.1.

Among the most relevant reports for next week in the US are the second revision of Q3 GDP on Wednesday, the Core Personal Consumption Expenditure Price Index and Jobless Claims on Thursday, and the ISM Manufacturing on Friday. Chinese PMIs for November are due on Thursday.

EUR/USD rose again on a weekly basis, but more gradually. The pair struggled to hold above 1.0950, but the short-term bias remains to the upside.

On Wednesday, the preliminary inflation figures from Spain and Germany will show how price performance was in November. Numbers are expected to show further cooling in inflation that would cement expectations that the European Central Bank (ECB) is done increasing interest rates further and could fuel speculation about potential rate cuts as the Eurozone economy remains stagnant. Eurozone CPI is due on Thursday.

GBP/USD decisively broke above the 20-week Simple Moving Average (SMA), rising above 1.2600 on Friday, the highest level since late August. The bias remains to the upside. The Pound also performed strongly versus the Euro, boosted by UK data. EUR/GBP had its worst weekly performance since August, retreating from monthly highs to levels below 0.8700.

The Japanese Yen was among the weakest currencies as government bond yields rebounded from monthly lows and also due to higher equity prices. The weekly chart in USD/JPY shows a Doji formation, with the price at the same level it had a week ago, after a sharp rebound from the 20-week SMA near 147.00 back to the 149.50 area.

USD/CAD dropped on Friday, breaking an important support level at 1.3650. Risks point to further weakness ahead. Canada will report monthly and quarterly GDP on Thursday and the employment report on Friday. 

The improvement in risk sentiment and the weaker US Dollar boosted antipodean currencies that were the best performers during the week.

AUD/USD rose above the 200-day SMA on Friday, reaching the highest level in three months, moving closer to 0.6600. Australian data next week includes Retail Sales on Tuesday, and the Monthly Consumer Price Index on Wednesday.

The slide in the US Dollar on Friday boosted NZD/USD towards 0.6100. The pair is slightly above the 200-day SMA, holding a bullish tone. The Reserve Bank of New Zealand (RBNZ) will announce its monetary policy decision on Wednesday. 

Gold rebounded despite higher bond yields and posted weekly gains, around $2,000. However, the yellow metal remains under the key resistance area of $2,010. A break higher would open the doors to further gains.