US Dollar Falls Ahead of Federal Reserve Minutes

US durable goods and Fed minute to guide greenback

The USD has fallen across the board with commodity currencies the biggest movers against the greenback. The Aussie 0.40 percent, the kiwi 0.34 percent and the loonie 0.31 percent. US yields are the flattest since 2007. The distance between the 2 year and 10 year bonds has narrowed by 20 basis points. The durable goods orders could have a bigger impact that the Fed minutes released on Wednesday, given that the market has already priced into the greenback a rate hike when the central bank meets in December.

The US Census Bureau will release the durable goods orders data on Wednesday, November 22 at 8:30 am EST. Economists are forecasting a gain of 0.4 percent for the core durable goods (excluding transportation) and the same increase for durable goods after the big gain of 2.0 percent in last month’s report.

Oil prices are higher on USD weakness and with tomorrow’s release of the Energy Information Administration weekly crude inventories at 10:30 am EST the price is subject to change. The price of oil has been sensitive to fluctuations in supply as the Organization of the Petroleum Exporting Countries (OPEC) and other major producers seek stability through a production cut agreement that expires in March of 2018.

The U.S. Federal Reserve will publish the minutes form its November meeting on Wednesday, November 22 at 2:00 pm EST. There will be more clues on where certain policy makers stand regarding inflation, but the market is still pricing in a 99 percent probability of a US rate hike in December. The monetary policy statement on November 1 did little to confirm a rate hike, but given the rise of the US economy and the Fed’s removal of the use of the “moderately” language.

The EUR/USD gained 0.10 percent on Tuesday. The single currency is trading at 1.1744 after US bond yields have fallen. The negative on the EUR of the German coalition failure seems to have been priced out despite positive housing data in the US. Over the weekend the attempt by German Chancellor Angela Merkel to form a coalition was not successful after the Free Democratic Party pulled out. Given the loss of votes to the two major parties the last partner of Merkel’s party declined to join her coalition and instead set its sights on the opposition. The uncertainty in German leadership could be a huge blow for Brexit negotiations. Despite the lack of clarity in the face of elections in the new year, the market still prices the EUR to outperform the USD in 2018. German growth will be a big component as the other EU nations show signs of recovery.

Kenny Fisher, MarketPulse analyst, outlined the improving housing conditions in the US. [http://www.marketpulse.com/20171121/gold-posts-gains-fed-minutes-ahead/]
US housing indicators continue to beat expectations. On Monday, it was the turn of Existing Home Sales, which climbed to a 4-month high. On Friday, Building Permits and Housing Starts impressed the markets. Building Permits for single-family homes jumped to 1.30 million, above the estimate of 1.25 million. The annualized pace of 839,000 building permits in October was the fastest since September 2007. Housing Starts also sparkled, accelerating to 1.29 million, compared to an estimate of 1.19 million. The catalyst for the strong numbers were hurricanes Harvey and Irma, which caused massive damage in the southern part of the US. With rebuilding efforts well underway, construction numbers should remain strong in the fourth quarter.

The USD has fallen more than 11 percent versus the EUR in 2017. The victory of Trump and his following pledge to introduce tax reforms and incur in higher infrastructure spending gave the US currency a boost, but as those promises have yet to come to life the buck is under pressure. The actions of the Fed have been priced into the currency pair, but as the European Central Bank (ECB) starts tapering its massive QE program and a potential rate hike in 2018 the single currency has risen as there is more upside seen by investors compared to the dollar.

The U.S. Federal Reserve has telegraphed its intentions in 2017 and will round up the year with an interest rate hike before a change in leadership takes place in February sees the rise of Jerome Powell to the chair position while Yellen has said that she will retire despite still holding a governor position.

Market events to watch this week:

Wednesday, November 22
8:30 am USD Core Durable Goods Orders m/m
8:30 am USD Unemployment Claims
10:30 am USD Crude Oil Inventories
2:00 pm USD FOMC Meeting Minutes
4:45 pm NZD Retail Sales q/q
Thursday, November 23
4:30 am GBP Second Estimate GDP q/q
8:30 am CAD Core Retail Sales m/m
11:30 am CHF SNB Chairman Jordan Speaks

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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