Summary: The US dollar marched higher last week and did not meet much, if any, resistance. This may be the week that it retreats.
US dollar bulls may be forced to retreat this week with another round of US/China trade talks occurring in Beijing. US Treasury Secretary Stephen Mnuchin and Trade Representative Robert Lighthizer join the meetings on Thursday. President Trump said he cancelled a meeting with Chinese president Xi Jinping, which helped underpin the greenback last week.
Arguably, that was just another bullet point in Trump’s 'Art of the Deal'. China would like to avoid the imposition of 25% tariffs on $200 billion of their products imported into the US, which are scheduled to kick in March 1. Beijing will be motivated to offer some concessions, and the US will offer to extend the deadline. The Nafta talks, which eventually became the United States Mexico Canada agreement on trade, had a lot of fits, starts and fluid deadlines, and we see little reason why the Sino-US talks will not follow suit.
It was a different story last week. The greenback rallied across the board between its February 4 open and today, led by a 2.03% drop in the New Zealand dollar. The Australian and Canadian dollars did not fare much better, despite Canada’s stellar jobs report on Friday. AUDUSD was down 2.0% while USDCAD gained 1.44%. EURUSD lost more than GBPUSD in the same period, even as the UK closes in on a “no-deal” Brexit.
The US dollar extended those gains this morning. FX traders are a tad spooked by the CHF “flash-crash,” and risks that a no-deal Brexit could trigger a global shift toward risk-aversion trades. EURUSD continues to be weighed down by the dovish European Central Bank outlook, reconfirmed this morning by comments from ECB vice-president Luis de Guindos.
Top-tier US economic data in the form of Retail Sales and CPI are due Wednesday, and weak data may lead to a profit-taking US dollar bounce.
Wall Street is flat as of 14:00 GMT as traders weigh the prospect of positive news from trade talks against another US government shutdown. Traders are also keeping an eye on oil, where prices have dipped to a two-week low.