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US dollar drowns as data disappoint 


  • US inflation was moderately lower than expected
  • US retail sales disappointed badly, sending US dollar sharply lower
  • USDJPY could head towards 110 as resistance has been confirmed

Janet Yellen pointed out on Wednesday that the Fed was going to be data driven when it comes to next moves with a special focus on inflation. Today’s package seem to equip doves with strong arguments to be cautious and could postpone further tightening in the US. Understandably the US dollar has been suffering.

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Us inflation missed expectations only by a narrow margin... Source: Macrobond, XTB Research 

We have just received two important monthly reports: consumer inflation and retail sales. They both disappointed. While the most important metric, core inflation, was in line with expectations at +1.7% y/y, it was softer than expected in monthly terms (0.1 vs 0.2%). Headline inflation was in line with market consensus (1.7%) but lower than in May (1.9%).

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However, retail sales disappointed again, rising concerns about US economic growth. Source: Macrobond, XTB Research 

Retail sales report was a pure disappointment. After a decline in May investors expected recovery this time around. However sales declined regardless of the metric used: headline was down by 0.2% m/m, core down 0.2% as well and sales ex. auto and gas down 0.1% m/m. Therefore while inflation miss is "manageable",  decline in sales which also pulled annual increase in sales down significantly, could rise concerns about the pace of the US recovery.

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USDJPY reversed from the key resistance zone and could be headed towards 110 as bond yields decline. Source: xStation5 

Unsurprisingly this had a detrimental impact on bond yields - 10 year yield moved down to 2.29% from 2.34% in the morning. This move hurts the dollar. We can see a significant impact on USDJPY. In case of this pair it is especially important because it underscores a rejection from a major resistance zone and could keep it in a broad mid-term consolidation for much longer, denying a scenario of US dollar recovery. 



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