US Dollar: The “Last Man” Standing?
Without a doubt, investors’ nerves are at elevated levels amid the impending Greek crisis. Thus, as we begin the week, investors will have high hopes for some good news on the dollar front. If the US economy is, indeed, taking off again, investors could finally get the certainty they’re looking for. That would allow them to ease back into the cosy cradle of the strong dollar, the only currency left standing.
What could send a signal to investors that they’ve got a green light for a dollar take off? Though a GDP report would normally take precedence, not so this time as it’s the third release of Q1 figures. GDP will instead take a back seat and sitting in the cockpit is Tuesday’s release of durable goods orders. Durable goods measures purchases of items that are non-perishable, and it includes everything from bricks to trucks to furniture. Since durables measure purchases that will endure over the long haul (hence, the name), it is considered a very strong barometer of the US economy. That would shed light on growth for the quarter and the overall sentiment among businesses and customers.
The focus will be on the durable goods release ex transportation, the less volatile version of the durable goods order release. Last month, the figures for durable goods ex transportation broke through the 0% psychological barrier and moved to positive territory, growing 0.5%. If those figures accelerate in June, it will be a cue that the US economy is indeed taking off and sentiment is again turning positive. With that, the dollar could resume to trade higher though the outlook for Wall Street would still be uncertain.
Yen Traders on Alert
As always, the dollar will carry most of the weight when it comes to sentiment in the FX arena. However, developments in Japan could generate elevated volatility and possible risks and opportunities for the Yen trade. The Yen drama began a fortnight ago when BOJ Governor Haruhiko Kuroda, like a samurai waving his katana, slashed the USD/JPY in the blink of an eye with his comments that “the Yen is fairly valued.”
But still, if things in Japan continue to deteriorate, the BOJ might eventually be pushed to the corner. This week, there are two releases that could shed light on chances of more stimulus from the Japanese central bank. The first will be the BOJ minutes due out on Tuesday, which will reveal the dynamics among the members. More importantly, it will shed light on whether the BOJ really thinks there is no chance that it will add more stimulus. Or else it will affirm that the hawkishness of Kuroda’s speech was overstated. Then we have Japan’s Core CPI, which fell last month to 0.3% Year-on-Year. If core inflation falls even lower in this reading, the USD/JPY bullish trend could quickly resume.
A Word on Greece
Despite discussions and summits being periodically organized, there is no specific day to which investors will focus on Greece’s debt crisis. Rather, the Greek debacle will continue to loom large in the background. As the deadlines approach for June’s IMF payment and July’s ECB payment, there is a sense of urgency that every new development could tilt markets and global sentiment. If the talks result in a postponement of the payment deadlines the effect on markets will likely be moderate. If not, then this week might be a game changer that could overcome the effects of any of the other events pinned to the calendar.
Down to Business
Overall, durable goods ex transportation will dominate sentiment for the dollar and Wall Street, but any development in Greece, negative or positive, will overcome all else. If Greece reaches a deal, appetite for the dollar could subside amid renewed Euro demand. But a negative development, such as a Greek default or a Grexit? That could generate a wall of dollar buyers that, in their attempt to flee risk, will push the dollar substantially higher regardless of US economic performance. Of course, no developments in Greece would leave the limelight for US durables goods.
On the Plate
UK Inflation Hearings(Tuesday)- The outlook for UK inflation could either support the Sterling if inflation expectations are raised or it can weigh on the sterling if inflation expectations are revised lower.
Durable Goods ex transportation(Tuesday)- The main event of the week. If durable goods rise more than 0.5% it will be considered highly positive for the dollar.
BoJ Meeting Minutes(Tuesday) – If the BoJ protocol will indeed reveal more hawkishness from the BoJ board it could support the Yen.
German IFO(Wednesday ) – Will provide an insight on business sentiment in the German economy.
US GDP Q1(Wednesday) – The third release of the US Q1 GDP will be the least important of the three. And still, the direction of the revision from the last release could affect the dollar.
SNB Quarterly Bulletin(Wednesday)-Will provide more insights into the SNB monetary policy.
Japanese Core CPI(Thursday) – If Core CPI in Japan falls lower year on year it could propel the USD/JPY higher.
Chart of the Week – FTSE100