USD hinges on upcoming data - BTMU

FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, suggests the upcoming releases would determine the direction of the USD.

Key Quotes

"The dovish speecH by Fed Chairwoman Yellen last Wednesday only had a fleeting impact in undermining the dollar with the incoming data proving more important in determining market direction. While the emphasis of much of the speech last week was on spare capacity and growth that has not been strong enough to lift inflation, that argument is likely to weaken over the coming months as the economy strengthens and perhaps the markets are beginning to sense this."

"The industrial production data (before the speech) followed by the initial claims data and the ‘Philly Fed’ manufacturing index all point to a strengthening labour market and a revival in manufacturing activity after the cold weather and the inventory adjustment. In our opinion, the most important piece of US data of late was the CPI report last Tuesday which revealed another jump in services inflation – the 3-month annualised rate jumped to 4.0% in March, the highest reading since August 2008."

"The longer services inflation in the US records readings like in March, the quicker Yellen will lose credibility in her rhetoric expressing concern over low levels of inflation. Incoming data will be key going forward and the spike in US yields last week after the Yellen speech is a clear indication that dovish rhetoric can only take you so far in determining yields in the market."