USD: Biggest problem facing bulls will be the economic data - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that after Janet Yellen’s comments in Harvard on Friday, the market puts the odds of a rate hike at either the June or July FOMC meeting at better than evens.

Key Quotes

“DXY, the dollar index, is at its best levels since the end of March and the net US dollar speculative position on the US futures market, flipped back to long last Tuesday for the first time since April 15. OK US data, slightly hawkish Fed, USD short-covering and away we go.

The biggest problem facing dollar bulls this week will be the economic data. Monday is closed in the US but after unimportant personal income and spending data on Tuesday, the calendar moves on to the manufacturing ISM (horrible regional Fed indices sound a warning that a sub-50 headline is likely). Thursday brings the ADP employment index, and then Friday brings non-farm payrolls, where strike action is potentially a drag and we’re looking for a (spurious) slide to 140k. The Fed’s been talking up the economy, but a data-sensitive central bank’s ability to ignore even temporary weakness is doubtful. If the data are solid, fine, but will a shower of soggy data ruin the summer Fed hiking party?

Another way to put that, is to say that the first half of the week could be quiet, before nervousness about global manufacturing industry pops returns, and then at the end of the week, dollar bears and hungry risk-seekers will be ground down by another fearfully boring US jobs report that, in the current climate, feeds the speculation of a summer Fed hike.”