Week Ahead: More Pain Ahead For USD?

Nobody, it seems loves the dollar which has weakened against every single G10 currency this month.

It was already suffering from markets scaling back bets for further aggressive Fed rate increases, but the most recent soft US inflation report dealt the knockout blow. With signs of cooling inflation significantly reducing the pressure for the Fed to keep raising rates aggressively, the dollar could be yanked from its throne sooner than expected.

Before we discuss the technical and fundamental forces that may influence the not so mighty dollar, here are the scheduled economic data releases/events in the coming week:

Monday, 21 November

• CNH: China loan prime rates
• EUR: Germany producer prices
• USD: US Chicago Fed national activity index

Tuesday, 22 November

• CNH: China Bloomberg economic survey
• EUR: Euro area consumer confidence
• USD: US Richmond Fed manufacturing index, Cleveland Fed President Loretta and St. Louis Fed President James Bullard speech

Wednesday, 23 November

• NZD: Reserve Bank of New Zealand rate decision
• EUR: S&P Global PMIs Euro area
• USD: FOMC minutes of November meeting, University of Michigan sentiment

Thursday, 24 November

• EUR: Germany IFO business climate, ECB minutes of October meeting
• NGN: Nigeria GDP
• US markets closed for the Thanksgiving holiday

Friday, 25 November

• EUR: Germany GDP
• NZD: New Zealand consumer confidence index
• US markets close early

On paper, the week ahead looks relatively quiet with US stock and bond markets closed on Thursday for Thanksgiving. But looks can be deceiving with economic reports, central bank meetings in Israel and New Zealand among others in addition to speeches from financial heavyweights potentially injecting some more life into markets.

In regards to the USD, attention will be directed towards the US Chicago Fed national activity index and US Fed manufacturing index earlier in the week. However, the main risk event and potential shaker will be the FOMC minutes for the November meeting which could provide clues on the pace of US rate hikes. Although the central bank raised interest by 75 basis points during the meeting, it signalled that the next hike could be smaller. Any fresh information regarding this could reinforce expectations around the Fed dialling back on aggressive rates, especially after the soft US inflation figures. Such an outcome is likely to weaken the dollar further, dragging the equally weighted dollar index below 1.1900.

Looking beyond the FOMC minutes, EU energy ministers are scheduled to hold an emergency meeting in Brussels on Thursday which could influence market sentiment, possibly having a knock-on effect on the USD. On Friday, US markets close early as Black Friday marks the start of the festive shopping season.

Talking technicals, the equally weighted dollar Index remains under intense pressure on the daily charts. With the dollar stripped of its glory and fundamental forces supporting bears, the path of least resistance for the Index points south. A strong breakdown below 1.1900 could open a path towards 1.1700 and 1.1600, respectively. A move back above 1.2184 could signal an incline towards 1.2400.