Why This Week Is Pivotal for the Markets

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Part 3
Why This Week Is Pivotal for the Markets PART 3 OF 7

Why the US Dollar Could Gain This Week

US dollar helped by softer tariffs

The US Dollar Index managed a third consecutive positive weekly close, aided by flexible tariffs from President Donald Trump and softer-than-expected wage growth in the stellar February jobs report. 

President Trump signed the tariffs orders on March 8, 2018, but offered concessions to Mexico and Canada and opened a window of negotiations with other trading partners, reducing the anxiety about a full-blown trade war. The US Dollar Index (UUP) closed at 90.06 in the week, posting a weekly gain of 0.17%.


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Speculators’ positions as of March 6

As per the latest Commitments of Traders (or COT) report released on March 9 by the Chicago Futures Trading Commission (or CFTC), large speculators and traders have increased their short positions on the US dollar for a second consecutive week.

According to Reuters’ calculations, the US dollar’s (USDU) net short positions decreased to -$11.5 billion compared to -$11.3 billion in the previous week. This amount is a combination of the US dollar’s contracts against the combined contracts of the euro (FXE), the British pound (FXB), the Japanese yen (FXY), the Australian dollar (FXA), the Canadian dollar (FXC), and the Swiss franc.

Key events for the US dollar this week

The major event for the US dollar this week will likely be the inflation report, which is scheduled to be released on March 13. Apart from wage growth and unemployment, inflation is one of the key constituents of the FOMC decision-making process. If inflation in February improved more than expected, there’s a chance for the re-emergence of rate hike fears, even though a March hike has been accepted by markets.

At a macro level, risk appetite has improved over the last three sessions, geopolitical tensions look subdued, and tariff fears have been tamed. Overall, the decision on inflation on March 13 could decide the direction for the US dollar this week.


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