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Weekly Outlook on the US Dollar

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Weekly Outlook on the US Dollar

The US dollar was weaker Monday, backtracking against a basket of six major peers ahead of an eventful week of trade headlined by consumer price inflation and housing data.

The US dollar index declined 0.13 percent to 79.80 after emerging from a six-month low at the end of last week. The greenback has been under considerable pressure lately amid no clear timetable from the Federal Reserve about a possible rate hike.

Monday features very few market moving events for the greenback. The Department of the Treasury will release the April budget statement later in the day.

On Tuesday the Commerce Department will report on retail sales. Retail revenues increased 0.4 percent in April, following a gain of 1.1 percent the prior month, according to forecasts.

On Thursday the Commerce Department will report on consumer price inflation. In a testimony to the Joint Economic Committee last week Fed Chair Janet Yellen said the central bank expects inflation to move closer to its 2 percent target this year.

“Looking ahead, I expect that economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2 percent,” Yellen said in her testimony.

Consumer prices increased 0.2 percent in March and at an annual rate of 1.5 percent, official data showed last month.

Thursday also sees the release of factory data courtesy of the Board of Governors of the Federal Reserve. Industrial production is expected to have expanded slightly in April, after a 0.7 percent increase the prior month. Both ISM and Markit Group reported this month that US manufacturing expanded sharply in April, as output and new business accelerated further. According to ISM, 17 of 18 manufacturing sub-sectors reported gains in April.

The Commerce Department will close out the week with data on building permits and housing starts, giving investors a snapshot of the housing recovery at the start of the second quarter. Yellen said last week the Fed was puzzled by the prolonged slowdown in housing activity, which has weighed on the economy’s recovery. Housing activity has been under pressure since last summer, around the time mortgage rates began rising. New home sales fell 14.5 percent in March, while building permits declined 2.4 percent.

Economists expect building permits and groundbreaking to have rebounded in April, according to forecasts.

In the Monday session the EURUSD pair was treading water at 1.3762. Initial support is likely found at 1.3702. Technical resistance is likely found at 1.3802.

The GBPUSD advanced 0.24 percent to 1.6889. The pair looks poised to re-test 1.70 after falling short of that level last week. The daily chart shows initial support at 1.6787. Initial resistance is at 1.6894.

The USDJPY advanced 0.17 percent to test the initial resistance at 102.03. Initial support is found at 101.70.

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