Summary: The US dollar is set to close the week with large gains against the G10 while Brexit is holding both GBP and EUR back.
The US dollar opened in New York with gains and then added to those gains after the release of the November Retail Sales report. The headline result was as forecast but the ex-autos number, at 0.2% month-on-month, was a tick below expectations.
However, upward revisions to the October results for both categories gave the US dollar a boost.
The US dollar is set to close the week with large gains against the G10 major currencies since last Friday’s New York close. GBPUSD led the currencies lower thanks to Brexit and UK politics, losing 1.4%. The New Zealand dollar and the euro were down 1.14% and 1.04%, respectively.
Wall Street is poised to open with a nasty downdraft as traders play defense. It is likely just pre-weekend jitters triggered by the weak China data overnight because the news on the US/China trade talks are positive. China announced that it was halting additional tariffs on US cars imports for three months, an obvious concession to the Americans.
The week ahead will be the last full week of trading for 2018. Liquidity will deteriorate on the approach to the Christmas, other seasonal holidays and year-end. The prospect of poor liquidity, major economic data releases, and Bank of England and Federal Open Market Committee meetings suggests plenty of opportunity for nimble traders.
European Central Bank President Mario Draghi was his usual dovish self during Thursday’s press conference. Eurozone CPI data on Monday could justify his bias if they are as weak as forecast (-0.2% versus October 0.2%).
Wednesday, UK inflation data is on tap and Thursday is the BoE meeting. Brexit developments have overshadowed both, but GBPUSD could still see some wild price action, especially if BoE governor Mark Carney goes off the reservation.
Wednesday's FOMC meeting is complete with a new Summary of Projections and a press conference. The CME Fedwatch tool suggests a 78.4% probability of a 0.25% rate increase. Arguably, the US dollar could get a “pop” on a rate hike. Markets will be more interest to see if the dot-plot forecasts are downgraded.