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US Retail Sales could dampen Dollar’s outlook further today after Trump fired Tillerson

Mar.14.2018 11:00 am Asia/Dubai
By Konstantinos Anthis , Head of Market Research
Equities
Euro
Retail Sales
US Dollar

US Retail Sales could dampen Dollar’s outlook further today after Trump fired Tillerson.

Dollar and equities turn bearish after yesterday’s US inflation report and President Trump’s decision to fire Secretary of State Rex Tillerson and replace him with former CIA Director Mike Pompeo. The softer US inflation reading was not a surprise as the report printed in line with expectations so Dollar’s retreat was a natural and somewhat expected development. However it was the departure of another key person of the Trump administration that rocked the equity markets and added to Dollar’s pains. After Cohn’s resignation last week Tillerson’s departure is another blow to investors’ confidence because the reason that drove him out of the White House was that he and the US President disagreed on Trump’s approach to North Korea and the Iranian nuclear deal. This fact elevates uncertainty on the US approach to foreign policy and dampens the short-term Dollar outlook with the US currency dropping lower across the board.

To make things worse greenback’s pains might not be over yet as today the focus will be on the US Retail Sales report. Analysts are predicting a positive reading after last month’s decline but we suspect that things might not work out that well. With inflation backing off as seen in yesterday’s report and wage growth losing steam according to the latest Non-Farm Payrolls 10 days ago consumer spending may come in worse than predicted. Should we prove to be right, the Dollar will extend its decline and the Dollar/Yen will challenge the 106 floor.

Yen will drop to 106 today if US Retail Sales miss their mark after yesterday’s softer CPI reading.

At the same time, the Euro will also be on the forefront today as ECB President Mario Draghi will be speaking in Frankfurt. The head of the central bank appeared considerably bearish when we last heard from him earlier this month and his remarks tilted Euro’s outlook to the downside. In the meantime, the shared currency edged above 1.24 after yesterdays’ US CPI reading so it will be interesting to see whether Draghi’s comments today will again take a toll on the price action. If Draghi reiterates his bearish outlook the Euro will move towards 1.2350 but if he sounds more confident in Eurozone’s performance then 1.2450 is the next stop.

Equities turned negative on the back of Tillerson’s departure as investors grow nervous about the reshuffling of the Trump administration with key players being replaced on the basis of disagreeing with President’s way of thought. Clearly this doesn’t send a message of a steady and cool-headed administrative style and equity traders responded by looking for cover disregarding the softer inflation reading that would have propped stocks higher. The European futures are pointing lower this morning as markets on the other side of the Atlantic will respond to yesterday’s news and the US markets will also take their cue for the US Retail Sales reading that might surprise lower today. A break below the 25,000 points’ area for the Dow Jones will trigger further losses with support found a good 450 points lower.

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