Markets Calm Ahead of Busy Week

After a wild week in markets, the U.S. dollar opens today in muted ranges. That is due to change.

USD

This week may prove pivotal for the near-term direction of the U.S. dollar as traders will closely watch economic data for signs of sustained inflation and growth.

Today’s docket is light except for the expected release of President Trump’s budget proposal later today. It is expected that Trump will drop a longstanding Republican Party goal to balance the budget in 10 years, instead preferring a spending increase coupled with the recent tax reform bill. Concerns of another round of fiscal expansion could weigh on the greenback.

The economic docket intensifies during the second half of the week. January’s consumer price index will take center stage on Wednesday as investors look for proof that the rise in wages is making its way into the economy. Strong inflation data will help solidify Federal Reserve expectations but could damage equity markets. At the same time, Retail Sales are set to hit the wire. The Produce Price Index, empire state manufacturing and industrial production are set for Thursday while the University of Michigan Sentiment report will round out the week on Friday.

 

JPY

Japanese markets were closed for a national holiday, but that did not stop news from breaking. According to Kyodo News and Nikkei, Japanese Prime Minister Shinzo Abe will nominate Bank of Japan Governor Kuroda for another five year terms. The likely continuation of the Abe/Kuroda duo will bode well for the Japanese economy. In addition, we expect recent ranges to persist over the medium term.

 

GBP

The British pound experienced wild swings to close last week but fell into a relative calm to start the week. The biggest event this week will be Prime Minister Theresa May’s “Road Map to Brexit” speech on Wednesday. Market participants are hopeful that the speech will solidify a concrete plan, or at least a clear stance, over Brexit negotiations. Ahead of the speech, the sterling will be susceptible to headline risk. Friday’s official Retail Sales data could cause some fireworks ahead of the weekend.