What breaks the deadlock? The past week demonstrated that strong economic data isn't enough to sustainably boost any currency until the political fog clears. The yen was the top performer on the week while the pound lagged but the overall ranges were small. 1 of the 3 USD premium trades was closed at a profit, leaving 2 USD trades in progress, 1 of which is in the green and the other in the red.
So what are we waiting for? Is it clarity on Trump's currency policy? Fed policy? Or economic growth? The economic numbers have been very good and barely moved the US dollar needle. Yellen was more hawkish but the dollar shrugged. So we're left to continue focusing on politics but we're also keeping an open mind.
An alternative view is inflation. If we take the view that all governments are poised to spend more in order to either fuel, or extinguish populism then prices could climb globally. But it might be uneven. Conceivably, countries closing borders may lose out on trade and experience some self-inflicted inflation. But overall that strikes as an uncertain and slow-moving factor.
Emerging markets are also in the crosshairs. One fact of globalization that's in little dispute is that it has boosted emerging markets. A retrenchment in trade is inherently negative and it creates an endless series of questions about investment and capital flows.
Taking a wider view, everyone is struggling with these questions, but it's tough to believe that's what's kept the market frozen. As the search continues, we will keep a close watch on technicals.
In terms of economic data, the week begins with New Zealand PPI and Japanese trade balance. Note that it's a holiday in North America so trading may remain constrained for at least another day.
CFTC Commitments of Traders
Forex speculative futures positioning. + denotes net long; - denotes net short
EUR -47K vs -45K prior GBP -66K vs -64K prior JPY -51K vs -55K prior CHF -11K vs -14K prior CAD +19K vs +8K prior AUD +24K vs +17K prior NZD +3K vs +1K prior
The commodity currencies extended the slow burn of the past month. The Australian and Canadian dollars continue to flirt with breakouts.