Last week was the worst week for the US dollar since mid-December. And if we use the dollar index as our measuring stick for the greenback’s status, this is only the second time since early July of last year that the dollar is lower over a two-week period. To me it merely looks like a case of temporary trend exhaustion. It’s tough to build a case for the timing of a USD dollar recovery, so we’ll have to take it one day and one event risk at a time. And the US calendar is thin on event risks this week.
The first general test of the US dollar’s strength will be how EURUSD behaves if we get any sudden clarity on Greece from today’s negotiations, though it already felt like the market was tiring somewhat of reacting to every headline out of Greece. Still, signs that negotiations are proceeding towards some kind of workable solution have crushed Greek yields since last Thursday, so a “positive” (amicable) outcome is at least partially already priced in.
Japan’s growth data for Q4, release overnight, disappointed significantly, but the market seldom reacts much to Japanese data, and we remain in a technical limbo in USDJPY between 118.00 and 120.00 at the moment, just as other USD pairs are also embedded in ranges and yielding few clues on what we should expect next.
It feels like treacherous trading conditions should be expected this week, with false breaks possible either way, and then reversal that also fail to see significant follow-through. That’s what we’ve seen in USDJPY thus far, for example. Still, the main impression coming into this week is that the USD is on the defensive until further notice.
A week of treacherous trading conditions awaits. Photo: iStock
Chart: USDJPY
USDJPY is symptomatic of the broader USD picture, as it trades in the limbo of the middle of the range and is yielding few clues – it disappointed the bulls with the reversal from last week’s break higher, but there’s no real bearish case unless we pick up momentum lower through 118.00, and really not unless we break the ascending line of consolidation. 
The G-10 rundown
USD: As indecisive as it gets if we look across the board, but clearly on the defensive until proven otherwise. It’s easy to build the case to sell the USD on counter-trend breaks – for example above 1.1500 in EURUSD, but let’s see if these develop this week.
EUR: A test today from Greece/EU negotiations as an amicable outcome is largely priced in, though it is tough to say how much more potential there might be in EURCHF to the upside, for example.
JPY: Keeping its cards close to its chest. Watching 118.00 and 120.00 in USDJPY.
GBP: the most active calendar this week, though the Bank of England did spell out that it is willing to look through very low inflation in the near term and sees lower energy prices as a positive for the UK, so don’t expect tomorrow’s CPI release to generate a huge reaction. Wednesday’s jobs and earnings data may be another matter.
CHF: EURCHF still pushing around close to the 1.0650 resistance and could continue higher if the Ukraine situation stabilizes this week and we get more clarity out of Greece.
AUD: Strong recovery after the ugly employment report last week suggests strength until proven otherwise, although fundamentals aren’t particularly supportive, so the rally may fade soon.
CAD: USDCAD makes the impression of wanting to test the 1.2400/1.2375 zone of support. Given the scale of the rally from the 1.0620 base, even a 38.2% retracement would see us testing below 1.2000 without straining the bullish case, but let’s take it one step at a time, as we’re still looking for reasons to get long USDCAD.
NZD: Remains the little over-achiever as AUDNZD is testing the multi-decade lows again and NZDUSD probes 0.7500. Looking for reversals to suggest that it is time to get short NZDUSD again.
SEK: Trying to decide whether it has absorbed the impact of last week’s Riksbank decision. A weaker SEK is the default expectation, but wondering how much this can extend if the environment remains generally positive. Look out for the Swedish CPI release tomorrow.
NOK: Looking firmly to the upside in EURNOK on the least sign of weakness in the oil price, as Norges Bank spelled out that it wants a weaker NOK to support Norwegian competitiveness .
Economic Data Highlights
- New Zealand Jan. Performance of Services Index out at 57.8 vs. 56.7 in Dec.
- New Zealand Q4 Retail Sales ex inflation out at +1.7% QoQ vs. +1.3% expected
- Japan Q4 GDP out at +0.6% QoQ and +2.2% Annualized vs. +0.9%/+3.7% expected, respectively.
Upcoming Economic Calendar Highlights (all times GMT)
- US markets closed today for President’s Day
- Norway Jan. Trade Balance (0900)
- Euro Zone Dec. Trade Balance (1000)
- Euro Zone ECB announces ABS, Covered Bond Purchases (1445)
- Australia RBA Feb. Meeting Minutes (0030)