Softer US data sends US Dollar lower

When trying to determine what the Fed will do at its next meeting, there are many variables that come into play. Retail Sales inflation data and manufacturing data are a few of the most important factors. December Retail Sales showed that shoppers spent less in December as the MoM print was -1.1% vs an expectation of -0.8% and a November reading of -1.0% (revised from -0.6%). In addition, Retails Sales (ex-Autos) was also -1.1% MoM vs an expectation of -0.4% MoM and a November reading of -0.6% MoM (revised from -0.2% MoM).

US PPI was also weaker than expected. Headline PPI fell to 6.2% YoY vs an expectation of 6.8% YoY and a prior reading of 7.3% YoY (revised from 7.4% YoY). This is the lowest PPI reading since March 2021.

Adding fuel to the fire are Industrial Production and Manufacturing Production for December. Both prints were weaker than expected, suggesting that the soft-landing scenario the Fed has painted may not be so cut and dry. Industrial Production was -0.7% MoM vs an expectation of -0.1% MoM and a November reading of -0.6% MoM (revised of -0.2%). This was the biggest decline since September 2021. Manufacturing Production was also weaker at -1.3% MoM vs an expectation of -0.3% MoM and a November reading of -1.1% MoM (revised from -0.6%). This was the largest decrease in the data series since February 2021.

Weaker retail sales, inflation, and manufacturing data point to a more dovish Fed when it meets on February 1^st. This is pushing interest rates and the US Dollar lower. US 10-year yields fell to their lowest level since mid-September 2022 at 3.375% while the DXY is closing on May 30^th, 2022 support at 101.30.

US 10 Year Daily

Source: Tradingview, Stone X

DXY Daily

Source: Tradingview, Stone X

With the BOJ and UK inflation earlier today, it's best to take a look at EUR/USD, as the Eurozone didn’t have much skin in the game today. On a daily timeframe, EUR/USD reached its highest level since April 21^st, 2022 as US Dollar weakness helped push the pair higher. Price is currently testing the top trendline of the channel, which began in November 2022, near 1.0865. If the US Dollar continues to weaken, the pair should remain bid. First resistance is at the highs of April 21^st at 1.0936. Above there, EUR/USD can move to the highs of March 31^st, 2022 at 1.1185, then the 61.8% Fibonacci retracement level from the highs of May 2021 to the lows of September 2022, at 1.1329. However, if EUR/USD pulls back, the first support is at the highs from January 4^th at 1.0635. Below there, price can test a confluence of support at the 50 Day Moving Average and the bottom trendline of the channel near 1.0548. Next support is the lows of January 6^th at 1.0482.

Source: Tradingview, Stone X

If the data continues to come out weak for the US, it could mean a move dovish Fed than expected on the back of weaker inflation and the possibility of a hard landing. On Thursday and Friday, the US releases housing data and the Philadelphia Fed Manufacturing Index. Manage risk accordingly.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.