15 Jan: US$ sold heavily despite strong data. Stocks, commodities higher. US long w/e today: FXCharts

Strong US data failed to help the US$ on Friday as the Euro rallied to more than three-year highs in the wake of last Thursdays’ hawkish minutes, taking the other EU majors with it and putting the dollar under heavy pressure, with the DXY reaching a 3 year low.  The ECB’s Weidmann underpinned the Euro early on Friday by saying that an end date for the current QE programme is justifiable, while further gains were seen after news of a breakthrough in political negotiations between Angela Merkel and her potential coalition partners. Sterling joined in the move, roaring up to near 2 year highs after a report that Spain and Holland are seeking a plan for a soft Brexit. This was later denied but had little effect on the enthusiasm to sell the dollar. In other markets, stocks rallied strongly, once again reaching all-time highs on the back of the strong US data, while commodities and the commodity bloc currencies headed higher, underpinned by the soft dollar. In terms of data, the US core CPI rose a strong 0.3%mm (expected 0.2%mm) pushing the annual rate up to 1.8%yy vs consensus of 1.7%yy.  US retail sales were slightly weaker for December (control group 0.3% vs 0.4%) but both November and October were revised up (Nov 1.4% vs 0.8%, October 0.5% vs 0.4%) pushing Q4 GDP tracking up by 0.6% to 2.8%.

Looking ahead, Monday is a US long weekend (ML King Birthday) so it may be a quiet start to the week, with little major data to be seen elsewhere (NZ Business Confidence, Australian TD Inflation, EU Trade Balance), in what will be a generally fairly quiet week for data. Tuesday will focus on the German and UK CPI, and Wednesday, the EU CPI. Thursday will be busy, with the Australian Unemployment and China Q4 GDP and Retail Sales in focus ahead of the US Housing Starts, Building Permits and weekly Jobless Claims later in the day. Friday will look to the German PPI, EU Current Account and the BOE Monetary Policy Statement. The main event of the week will be the BOC (Canada) interest rate decision on Wednesday, where a rate hike is pretty much written in following some recent strong data. If so, the Aud and Kiwi are both likely to receive a further boost.

I am busy with overseas visitors until Wednesday. Normal Services will resume on Thursday